El Nino lagging supply impact underpins positive outlook for plantation sector – MBSB Research

KUALA LUMPUR: Despite the hot weather and the subsequent haze impacting much of the oil palm growing regions of the Peninsular Malaysia and Sabah and Sarawak, palm oil yields are currently demonstrating an uneven supply impact, indicating that recent harvests have yet to reflect a weather-driven contraction.

For the first eight months of 2026 (8M26), the average fresh fruit bunch (FFB) yield for Malaysian estates stood at 10.83 tonnes per hectare, representing a mild 1.5 per cent year-on-year (YoY) decline from the 11.00 tonnes per hectare recorded in 8M25.

Regional performances diverged significantly during this period with Peninsular Malaysia experiencing a 7.8 per cent YoY drop, with yields falling to 11.29 tonnes per hectare. In contrast, the combined yields for Sabah and Sarawak improved by 5.8 per cent YoY, rising to 10.48 tonnes per hectare from 9.98 tonnes per hectare.

Despite this localized resilience, market analysts warn that sustained moisture stress could severely affect subsequent bunch output. This delayed agricultural response threatens to translate current rainfall deficits into weaker overall yields and tighter crude palm oil (CPO) availability by the calendar year 2027.

This lagging supply impact underpins MBSB Research's "Positive" stance on the plantation sector.

According to the US National Oceanic and Atmospheric Administration (NOAA), there is a 93 per cent probability of a very strong El Nino event materializing between Nov 2026 and Jan 2027.

The probability remains high at 75 per cent for the Dec 2026 to Feb 2027 period, which extends the critical window over which rainfall and plantation yields must be monitored.

Furthermore, dry conditions in August and a surge in elevated hotspots strengthen the fundamental case for tighter future supply, even though the national yield decline for 8M26 is currently contained at just 1.5 per cent.

Should subsequent harvests weaken due to these climate pressures, lower FFB production could tighten global palm oil availability and provide sustained support for CPO prices into CY27.

Consequently, maintaining exposure to the plantation sector remains a warranted strategy, particularly targeting upstream planters with greater direct exposure to Malaysian estates.

Borneon planters such as Ta Ann Holdings Bhd and Sarawak Plantation Bhd remain top sector picks, as they offer purer upstream exposure and are predominantly Malaysia-centric, positioning them better against severe El Nino-related disruptions.

Among large-cap players, SD Guthrie Bhd is favored, supported by its strong Malaysian footprint which accounts for approximately 54 per cent of its total FFB production.