Palm oil markets in 2026 are navigating a finely balanced equation. Global production of approximately 81 million tonnes is up 3% from 2024-2025, driven by recovery in Indonesian output and steady Malaysian yields. But demand growth — particularly from Indonesia's B40 biodiesel mandate requiring 40% palm oil blend — is absorbing much of the incremental supply.
Production recovery. Indonesia is forecast to produce 47-49 million tonnes in 2025-2026, up from 46-47 million tonnes the prior season, benefiting from improved weather conditions after the 2023-2024 El Niño. Malaysian output is expected at 19-20 million tonnes, essentially flat as aging tree profiles and labor constraints limit expansion.
Demand bifurcation. Food consumption accounts for roughly 55% of global palm oil demand and grows at 1-2% annually. The growth story is in biodiesel: Indonesia's B40 mandate alone consumes roughly 10 million tonnes of palm oil annually, up 25% from B35 levels. The EU's deforestation regulation continues to shape demand patterns, with European buyers shifting toward certified sustainable palm oil at premiums of $30-100/t above standard CPO.
Price outlook. Malaysian CPO futures are forecast to average $1,000-1,100/t in 2026, near current forward curves. The range represents a balancing of larger supplies against robust biodiesel and food demand, with weather risk (potential late-2026 El Niño) providing an upside trigger to $1,200+.
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Palm oil buyers in 2026 should focus on biodiesel policy risk more than weather. Indonesia's B40 mandate is the primary demand driver, and any policy change would directly affect CPO prices. We recommend: (1) contracting non-Asian CPO volumes for diversification; (2) maintaining 2-3 months of inventory buffer against weather-related production disruptions; (3) monitoring EUDR compliance as it affects European pricing premiums.