Estimated reading time: 15 minutes
If you tried to buy cooking oil in early 2025, you probably remember the empty shelves. New stock would arrive and be gone within hours.
While you were dealing with the headache, crude palm oil prices were quietly surging close to RM4,500 per tonne. When that happens, the impact goes way beyond plantation giants like Sime Darby and eventually finds its way into your grocery bill.
And when you realise the price changes, traders have already reacted much earlier. That reaction often happens in the futures market, specifically through one contract – FCPO, short for Crude Palm Oil Futures.
But how does a digital trading contract dictate the price of the physical oil in your kitchen? In this blog, I will break down everything you need to know about FCPO.
TABLE OF CONTENTS
What is CPO?
Before we talk about futures, let’s talk about crude palm oil, or CPO.
CPO is extracted from the pulp of oil palm fruit. Most people think of it as cooking oil, but palm oil actually shows up in far more places than you might expect.
It’s inside everyday food products like snacks, instant noodles, chocolate, margarine, and ice cream. But it also appears in things like lipsticks, toothpaste, shampoo, soap, candles, and even biodiesel.
In other words, palm oil is everywhere. That’s why it has become one of the most important agricultural commodities globally. And Malaysia is among the world’s top crude palm oil producers and exporters. In fact, the second-largest producer globally.
Together with Indonesia, the two nations produce about 85% of the world’s palm oil supply. When most of the world’s supply comes from just two countries, price movements are highly sensitive.
Why does CPO matter more than you think?
And before you think price movements have nothing to do with you, they actually do, more than you might realise. Here’s why:
- Malaysia’s economy: Palm oil is one of Malaysia’s largest exports. When CPO prices rise, export revenue increases. When prices fall, that support weakens. This can even influence how investors view the Malaysian ringgit.
- Food production costs: Palm oil is widely used in food manufacturing. When CPO prices rise, food producers face higher costs.
- Consumers: Those extra costs eventually get passed on to consumers like you and me.
In other words, movements in palm oil prices can quietly turn into food inflation.
Take 2022 as an example. CPO futures prices surged between March and April, and about a month later, Malaysia’s CPI and food inflation began to spike as well, peaking between May and July.
What’s driving CPO Price?
Like any other commodity, the price of crude palm oil (CPO) is largely shaped by supply, demand and policy.
Supply
Let’s start with supply.
Since Indonesia and Malaysia together supply around 85% of global palm oil supply, the inventory level and output of these two countries matter a lot.
Malaysia had a fairly strong production year in 2025, but output is expected to slow in 2026. One reason is a structural issue the industry has been dealing with for years: ageing plantations. A large number of oil palm trees are now more than 19 years old, and older trees simply produce less.
The obvious solution is replanting, but it’s not quick or cheap. Replanting costs roughly RM30,000 per hectare, which works out to around RM200 per tree if you assume about 150 trees per hectare. And even after replanting, farmers still have to wait 2-3 years before the new trees start producing fruit.
Because of the cost and waiting time, replanting has been happening quite slowly. Malaysia’s replanting rate was only 2.3% in 2023 and 2% in 2024, far below the ideal target of 4-5% annually. On top of that, the industry is still dealing with labour shortages, which further limits how quickly production can expand.
Over in Indonesia, growth is also expected to slow. Production is projected to increase by only 2-3% in 2026, compared with around 8% growth in 2025. At the same time, the Indonesian government has been reclaiming land used for what it considers illegal plantations, which could also affect productivity going forward.
Beyond these factors, there is also something that no one can control: the weather. Two climate patterns in particular tend to disrupt palm oil production – El Niño and La Niña.
El Niño usually begins around mid-year and peaks toward the end of the year, bringing hot and dry conditions that can reduce yields. La Niña, which typically occurs between October and December, brings heavy rainfall and flooding. Both conditions can disrupt harvesting and reduce output, tightening supply and pushing prices higher.
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Demand
Demand is where things get a little more interesting, because palm oil demand is actually very much affected by the availability and price of substitutes. It competes within a broader edible oil complex, alongside oils like soybean, sunflower, and rapeseed.
Because of this, large importing countries often switch between these oils depending on which one is cheaper.
For example, if soybean production in Brazil increases and soybean oil becomes cheaper, buyers may shift away from palm oil. But when soybean oil becomes more expensive again, palm oil quickly becomes the more attractive option. This constant switching between edible oils plays a major role in shaping global palm oil demand.
And this is not just a theoretical idea. It happens all the time in the real market.
Take India, the world’s largest palm oil importer and Malaysia’s largest palm oil buyer. India is highly price-sensitive and frequently adjusts its purchases depending on which edible oil offers the best value.
And China, the world’s second-largest importer and third-largest consumer of palm oil, behaves in a similar way. In fact, China’s demand for palm oil is expected to decline this year as buyers shift toward cheaper alternatives such as soybean and canola oil.
Policy
Next, let’s talk about something that quietly moves palm oil prices more than most people realise: the biodiesel mandate.
Biodiesel is a renewable fuel produced from animal fats, recycled grease, or vegetable oils like palm oil. Many governments require a certain percentage of biodiesel to be blended into diesel to reduce fossil fuel imports, boost domestic palm oil consumption, and lower emissions.
For example, Indonesia introduced the B20 programme in 2018, then gradually increased it to B30, and by 2026 it stands at B40, meaning diesel must contain 40% palm-based biodiesel.
At B40, Indonesia already has the highest blending rate in the world, and there have even been discussions about moving to B50. For comparison, Malaysia’s mandate is only around 10-20%.
If B50 were implemented, Indonesia would absorb more palm oil domestically, leaving less available for export. A tighter global supply usually means higher prices. However, as of January 2026, the Indonesian government announced that the B50 plan will not proceed this year, meaning inventories may remain relatively higher.
Other policies could also influence prices, including the European Union Deforestation Regulation and the US biodiesel policy for 2026-2027, expected to be announced in March.
All of this shows that supply and demand are not just about production and consumption. Policies also play a major role in determining CPO prices.
And this is where things get interesting. Markets, especially traders, don’t wait for official announcements. The moment they sense that supply might tighten, they start acting on it.
Those expectations are priced into the futures market almost immediately, often before plantation earnings are revised and before the headlines even appear.
Introducing FCPO
If you’re hearing about futures for the first time, here’s a simple way to think about it. A futures contract is basically an agreement made today to buy or sell an asset at a fixed price on a future date. In the case of FCPO (Crude Palm Oil Futures), that asset is crude palm oil.
FCPO is traded in Malaysian ringgit (MYR) on Bursa Malaysia Derivatives, and it’s one of the most actively traded contracts on the exchange. The market includes plantation companies that use it to lock in prices and hedge against volatility, as well as traders and retail investors who are simply trying to profit from price movements. And the interesting part is, all of this trading happens without anyone actually touching a single oil palm tree. Most importantly, the contract is also Shariah-compliant.
Even though Indonesia is the world’s largest palm oil producer, FCPO traded in Malaysia is widely regarded as a global benchmark for palm oil prices.
Because the contract itself is completely standardized, there is no need to negotiate the terms. Here is the basic breakdown of what you are actually trading:
- Contract Size: One FCPO contract represents exactly 25 metric tonnes of crude palm oil.
- Minimum Price Movement (Tick Size): The smallest amount the price can move is RM1.
- Tick Value: Since one contract is 25 tonnes, a RM1 move equals RM25 per contract per tick.
- Your Profit/Loss: Simply put, whenever the FCPO price moves by RM1, your profit or loss changes by RM25 for a single contract.
How you can benefit from price movement?
Let’s say it’s February, and the March FCPO contract is trading at RM4,000 per tonne.
Scenario A: You think prices will rise:
You’ve gained RM300 per tonne. Since each contract represents 25 tonnes, that works out to a RM7,500 profit.
You buy one contract at RM4,000.
Later, the price moves up to RM4,300, and you close your position.
Scenario B: You think prices will fall:
- You sell short at RM4,000.
- The price drops to RM3,700, and you buy it back to close the position.
- You’ve still gained RM300 per tonne, which again equals a RM7,500 profit.
And remember, futures are leveraged products, which means both your gains and your losses can be tremendous if the market moves against you. But this is exactly what makes the futures market so unique. You have the flexibility to trade both rising and falling prices, whether you are day trading, hedging your physical business, or just managing your overall portfolio risk.
Margin Explained
But before we go further and talk about where and how to trade futures, there’s one important concept you need to understand how margin works:
- Initial margin: When you open a futures position, you don’t pay the full contract value. Instead, you deposit an initial margin set by Bursa Malaysia Derivatives Clearing.
- Maintenance margin: After opening the position, you must keep a minimum balance in your account.
- Margin call: If the market moves against you and your balance falls below the required level, you’ll receive a margin call.
- What happens next: You must top up your funds or reduce your position. Otherwise, the broker may liquidate your position automatically.
And just to be clear, margin isn’t something unique to palm oil. It applies to all futures contracts, not just FCPO.
Where to trade futures in Malaysia?
Speaking of other futures, there are actually many types traded globally, including equity index futures, cryptocurrency futures, energy futures, metals futures, and agricultural futures like corn and soybean.
All of these can be traded through brokers that support derivatives trading. Personally, I use Webull Malaysia, which is licensed and regulated by the Securities Commission Malaysia. With just one app, you can trade not only Malaysia and global futures, but also stocks from Bursa Malaysia, the US, Hong Kong, and China A-shares.
And if you don’t have a Webull account yet, this might be a good time to check it out. Webull is currently offering two rewards for new users from this channel when you sign up using my link or the exclusive code “ziet888” and you’ll get:
- RM300 worth of trading vouchers when you deposit RM5,000 and maintain it for 60 days.
Just note that this offer is available until 30 June 2026, so if you’re interested, make sure to sign up before the deadline. Terms and conditions apply.
Tutorial: How to Trade Future?
If you’ve decided to open a Webull account, here’s how to get started:
1. Activate your futures account
2. Fund your derivatives account
Take note: Futures trading must be done through the derivatives account because of margin requirements
3. Understand intraday margin
Webull offers intraday margin at a reduced 40% requirement between 9:30 AM and 5:30 PM, but once this window ends, the margin requirement goes back to the normal level.
4. Find futures contracts
5. Review contract details Inside the contract page
6. Place your trade
7. Monitor your position
You’ll see a dashboard showing:
The app will also indicate whether your account is at a safe level, which is helpful when managing multiple positions.
Final Thought
The next time you hear about weather disruptions, biodiesel mandates, or soybean harvests, remember this: by the time prices change at the supermarket, the futures market has already moved. And for palm oil, FCPO is where those expectations often get priced first.
Once you understand how it works, it’s actually not that complicated. The futures market is simply a structured way for traders and producers to price what they believe will happen next, whether it’s supply shifts, policy changes, or substitution between different edible oils. In many cases, those expectations show up in futures prices long before the headlines do.
If you’re interested in exploring futures trading yourself, having the right platform makes a big difference. Personally, I use Webull Malaysia, which allows you to trade Malaysia and global futures, along with stocks from Bursa, the US, Hong Kong, and China A-shares, all within one app.
And if you sign up using my exclusive link or code “ziet888”, new users can enjoy a few perks:
- RM300 worth of trading vouchers when you deposit RM5,000 and maintain it for 60 days
- Zero commission on US stocks for one year, starting 1 January 2026 to 31 December 2026 for existing clients, and one year of commission‑free trading on US stocks for new clients from the account activation date.
- For Malaysia stocks, the commission is 0.05% with a minimum of RM2.50.
So if you’re interested, check it out before the campaign ends. If you prefer a video version of this article, I have made a video covering the exact same thing – do check it out here! Thanks for reading!
Disclaimer: This content is sponsored by Webull. This advertisement has not been reviewed by the Securities Commission Malaysia. T&C applies.
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