RHB recently hosted a briefing on the outlook for El Niño and crude palm oil (CPO), reaffirming its expectation that CPO prices will remain well supported, with the potential to strengthen further towards the end of the year as the effects of El Niño become more pronounced.
Weather agencies, including the US National Oceanic and Atmospheric Administration (NOAA) and the Australian Bureau of Meteorology (ABM), are aligned in forecasting a strong to very strong El Niño event.
Current climate models assign a 97% probability that El Niño will reach strong or very strong intensity between October and December, making it one of the most significant events recorded since 1950.
According to agronomists from the Malaysian Palm Oil Board (MPOB), El Niño conditions typically reduce average fresh fruit bunch (FFB) yields by 10% to 14% during the first year.
Should dry conditions persist, yields may decline by a further 3% to 4% in subsequent years.
Although rainfall remains relatively normal at present, the driest period linked to El Niño is expected to occur between October 2026 and January 2027.
MPOB believes this episode could rival the severity of the 1997-1998 El Niño, which lasted for roughly a year.
Once rainfall patterns return to normal, oil palm estates generally require about two years for FFB production to recover fully.
The states expected to bear the brunt of the dry spell include Negeri Sembilan, Johor, Pahang and Sabah.
Historically, Johor and Pahang have experienced simultaneous rainfall shortages during El Niño periods, while Sabah’s east coast tends to face more severe seasonal dryness than other parts of the state.
Beyond weather-related supply concerns, CPO pricing has become increasingly influenced by government policies, particularly biofuel mandates.
Indonesia’s B50 biodiesel programme, which came into effect in July 2026, is expected to consume around 18 mil tonnes of CPO annually, equivalent to more than 35% of the country’s total production, thereby tightening global supply and providing additional support for palm oil prices.
MPOB expects average 2026 CPO prices to be MYR4,300-4,500/tonne, and for prices to not drop <MYR4,000 in the short term.
It also anticipates the El Nino impact to come through in quarter four 2026, expecting Malaysia to record a 2-4% year-on-year decline in output in 2026.
Despite tight supply, MPOB believes that the current catalysts of El Nino and B50 are somewhat priced in for this year, although when the weak production impact starts to come through towards the year end, there could be another price spike in 2027.
“We maintain our OVERWEIGHT call on the sector and our CPO price assumptions of MYR4,400/tonne for 2026 and MYR4,300/tonne for 2027,” said RHB.
RHB continues to highlight, however, that upside risk lies in their 2027 price assumptions, given the significant 12-month lag effect of El Nino.—July 27, 2026
Main image: ableperfect.com.my
