Conditions remain ripe for palm oil price volatility
Food Business News (13/08/2025) - KANSAS CITY— The global palm oil market is managing a slew of conundrums. While it is the most consumed vegetable oil in the world, it also is considered by some groups as “the world’s most hated crop” due to environmental and labor concerns. It generates ire and support from certain health-conscious groups, as the palm oil fruit offers both seed-oil and seed-oil-free extracts.
It also is one of the most prolific crops on the planet, but the advancing age of both the trees and its workforce along with the shallow replanting efforts in the top producing countries has cast a weak outlook for a crop that provides 40% of all the vegetable oil used in the world, while only using 6% of the world’s oilseed crop area to produce it.
Palm oil is one of the most volatile commodities from a market perspective. In the past year, it has catapulted from being the least expensive vegetable oil on the global market to the most expensive oil and then back down to the least expensive.
Originating in West Africa, the oil palm tree was cultivated in Southeast Asia in the early 20th century by the British government which championed the oil as a suitable replacement for less accessible and more expensive oils like tallow and whale oil. Today, the Southeast Asian countries of Indonesia and Malaysia produce about 85% of the world’s palm oil supplies, and its uses range from cooking oil to industrial applications.
Food manufacturers around the world value palm oil’s versatility. When it is refined, palm oil is odorless and color-free and has a neutral flavor. Its semi-solid texture at room temperature provides suppleness, and it resists oxidation, which helps extend shelf life. Plus, it is heat stable, making it a suitable component for a wide array of food products.
Palm oil is not the most consumed edible oil in the United States; that title belongs to soybean oil. But it is a significantly used commodity, making up approximately 50% of US grocery store items, from frozen pizzas to lipsticks.
The US Department of Agriculture in its recent Oilseeds report raised the projection for 2025-26 US imports of palm oil by 12% to 1,850,000 tonnes due to increased food use. Some food companies, hoping to capitalize on the current trend that vilifies seed oils, have turned to palm oil as a viable and inexpensive replacement for soybean and canola oils. But it must be noted the fruit of the oil palm tree produces two types of oil. Crude palm oil, which is produced by squeezing the fleshy fruit from the oil palm tree, is considered a seed-free oil. But palm kernel oil, which is produced by extracting oil from the seed of the same fruit, is classified as a seed oil. Plus, palm oil contains a significant amount of saturated fat, which may contribute to heart disease.
Also challenging for many global manufacturers is the environmental concerns about palm oil production. Conservation groups have criticized palm oil producers for deforesting the habitats of endangered animals like the orangutan and pygmy elephant. Accusations of child labor and slave-like conditions also plague the commodity.
In 2023, the European Union Commission adopted an initiative called the Regulation on Deforestation-free Products (EUDR) as part of its European Green Deal platform, which prohibits the entry of products on the EU market unless the procurer can prove the products did not originate from nor contribute to deforestation. The Commission plans to enforce the regulation on Dec. 30 for major operations and on June 30, 2026, for smaller producers.
The deforestation regulations, however, may inadvertently exacerbate the outlook for shrinking palm oil production. Most trees in the major producing areas are old and need to be replanted as older trees do not produce as much fruit and eventually grow too tall for farmers to access. But new trees take several years before they produce profitable fruits, which limits replanting, and expanding crop area to plant new trees while tending to the current crop is difficult under the EUDR guidelines.
All these factors contribute to the volatility of the palm oil market. Prices jumped to two-year highs in December 2024 on ideas adverse weather and increased domestic usage in top-producing countries may limit supplies available to the global market, according to data collected by Sosland Publishing Co. Since then, palm oil has returned to its typical discount status to other global vegetable oils. But the eventual enforcement of the EUDR and the recent enactment of US tariffs may continue to support a volatile environment for this widely used commodity.
Read more at https://www.foodbusinessnews.net/articles/28817-conditions-remain-ripe-for-palm-oil-price-volatility