Palm oil hits highest since 2024 as biofuels, El Nino cut supply

Palm oil prices reached a two-and-a-half year high due to increasing demand for biofuels and production challenges caused by the El Nino weather pattern, according to a report from the US agriculture department. Global palm oil reserves are set to hit a nine-year low for the 2026-27 season. Indonesia, the world's largest producer, has begun its B50 biofuel mandate, which is expected to increase domestic use of the crop and reduce exports.

Malaysia, the second largest grower, is also facing a dry spell that has negatively impacted farmers. The El Nino weather phenomenon, known for causing dry conditions in Southeast Asia, is exacerbating the production issues. The US agriculture department's forecast of falling global palm oil reserves has contributed to the recent price surge, pushing Kuala Lumpur futures to their highest level since December 2024.

The rally in palm oil prices follows a similar trend in other staple crops, such as corn and sugar, which are also experiencing price increases and potentially contributing to food inflation. Additionally, recent attacks in the Black Sea have disrupted crop exports from Russia and Ukraine, two major sunflower oil suppliers, prompting buyers to seek alternative vegetable oils.

Trading expert Gnanasekar Thiagarajan noted that the recent high in palm oil prices could be a "technical breakout point," but several factors may limit further price increases, such as a stronger ringgit and competitive soy oil prices.