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The palm oil market is at a crossroads. As global demand for food, fuel, and other essentials grows, production struggles to keep pace. For years, Indonesia has driven the expansion of palm oil supply, but its recovery is now met by adverse land policy exacerbated by stagnation in Malaysia’s oil palm planted area and declining yields, its closest rival.
Navigating the market requires an understanding of how government policies, shrinking agricultural land, and sustainability pressures will shape the landscape in 2026.
The narrative around palm oil production in 2026 features two diverging paths. Indonesia is set for a recovery, with crude palm oil (CPO) production projected to increase by 1.5–2.0 million tonnes from 2024 levels. The official Indonesia Palm Oil Association or better known as GAPKI reported an 11% or 4 million tonnes of production increase in the first nine months of 2025 versus the same period in 2025 to 39.60 million tonnes, setting the stage for a bountiful crop year.
However, this growth is set to face serious risk in 2026 following increased uncertainty over land titles, resulting in governments’ backed land-seizure program. The government has up to date seized 3.3 million hectares, of which 1.5 million hectares of oil palm planted area transferred to the state-owned PT Agrinas, with another 1.8 million hectares under verification. placing between 2–5 million tonnes of CPO production at risk, introducing serious supply uncertainties in 2026.
Listed Indonesian plantations which reported strong growth in the first half of 2025 compared to the previous year may face a sharp decline in output in 2026, signalling a year of challenging financial outlook.
Likewise, Malaysia is set to experience a strong production year in 2025, with the prospect of record-high output nearing 20 million tonnes. Strong growth performance in October and robust output in November, marking the best ever November production, are set to boost the overall annual performance. Favourable weather, adequate labour for timely harvesting, and improved fertilizer application in the previous year collectively supported strong palm production in 2025.
However, 2026 production performance could be tempered, particularly in the first quarter of the year, as trees go into the resting phase following solid yield performance in October and November.
Malaysia’s 2026 CPO is projected to be 19.60 million tonnes, a forecasted reduction of 400,000 tonnes from 2025. Performance in the first quarter of 2026 will be critical to the annual growth.
In contrast to Indonesia, Malaysia enjoys favorable land policies governed at the state level. Other major problems such as stagnating oil palm planted area at around 5.60 million hectares is expected to curb future production potential. Additionally, high dependence on foreign labour for harvesting an increasing number of aging trees are severely limiting the country’s ability to boost output. Without significant investment in replanting and mechanization, Malaysia’s production capacity will remain constrained.
A new element of risk has also emerged in Indonesia. The government has intensified efforts to seize oil palm plantations operating illegally on forested land. Approximately 1.5 million hectares have already been seized and transferred to the state-owned PT Agrinas, with another 1.8 million hectares under verification. While the immediate impact on 2025 production is minimal, how the state manages these plantations could significantly affect output in 2026 and introduce a new layer of governance risk.
Trade and biofuels policies have become the two most critical determinants of palm oil pricing. In 2026, government mandates will anchor prices, particularly in the latter half of the year.
Indonesia’s biodiesel program is a key market driver. However, the government has scaled back its ambitious B50 mandate (a 50% blend of palm oil in biodiesel) to B45 for 2026, citing the need for further consideration. A road test of B50 biodiesel blend was announced in November, with the results due six months later. Market expectation is for the B50 to be implemented in late 2026.
This revision to the timetable implies that the supply landscape will be less tight than previously anticipated. Despite this, crude palm oil prices have not retreated, suggesting that underlying demand remains robust enough to absorb available volumes. The policy will continue to divert a significant portion of palm oil from export markets to meet domestic fuel needs, creating a floor for prices.
Global trade patterns will continue to be shaped by demand from key importing nations -India but less so China. The world’s largest importers are expected to continue rebuilding their stocks, providing consistent demand.
Ample soybean oil stocks from increased crushing and elevated palm olein compared to bean oil will likely keep Chinese palm oil import demand limited in 2026. This leaves the world’s largest palm oil buyer, India, to be an absorber of crucial demand in 2026 to support global palm oil prices. In Europe, Rotterdam remains a top five export market hub, and its prices are a key indicator for the region though liquidity and volumes have seen a steady decline over the years.
The European Union’s trade policies, including the Deforestation Regulation (EUDR) which is now postponed for the second time and due to take effect December 2026, will play a significant role in the pricing behaviour of palm laurics – crude palm kernel oil (CPKO), which is currently fetching $350-400 per tonne for EUDR compliance.
While these regulations aim to promote sustainability, they also introduce compliance costs and potential trade barriers that could influence import volumes and redirect trade flows. The effects of free trade agreements (FTAs) with the EU will also need to be closely monitored as pricing and practices could diverge non-EUDREUDR and non EUDR compliant.
The physical price of palm oil is closely linked to futures contracts traded on exchanges like the Bursa Malaysia Derivatives (BMD), where the benchmark Crude Palm Oil Futures (FCPO) contract is traded.
For 2026, we anticipate a firm price environment in the first half of the year, driven by steady demand from the food and fuel sectors. As the year progresses, we expect prices to flatten in the second half as the anticipated recovery in Indonesian supply begins to meet market demand. However, any disruptions to production or unexpected policy shifts could introduce renewed volatility.
Indonesia
Indonesia’s market in 2026 will be defined by three key factors: the continued recovery of production, the implementation of the B45 biodiesel mandate, and the operational impact of government land seizures. The successful execution of its policies and the management of newly acquired plantations will be critical in determining its output and influence on global prices.
Malaysia
Malaysia faces a challenging outlook. Stagnant output is a result of structural issues that are difficult to resolve in the short term. The industry’s heavy reliance on foreign labor and the slow pace of replanting with higher-yielding trees will continue to cap production gains. Market watchers should monitor reports from the Malaysian Palm Oil Board (MPOB) for early indicators of the Q1 2026 harvest.
To stay ahead in the dynamic palm oil market, stakeholders should keep a close eye on these key signposts:
The future of the palm oil market hinges on a delicate balance of supply recovery, policy execution, and global demand. At Fastmarkets, we provide the critical data and insights you need to navigate this complexity with confidence.
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