INTERNATIONAL MARKET REVIEW
More oil crops needed Vegetable oils have witnessed price rises for the past few months. Will supply be able to keep up with demand and how will producers respond? John Buckley
Low soyabean stocks
CBOT soya futures have reacted to the threat that stronger demand will tighten seasonal carryover stocks even more than expected, especially in the USA itself. Rain holding up a probable record soya harvest in Brazil has also supported the bullish move. Yields there may no longer be threatened by an earlier drought but quality might be and its stocks are unusually low after ‘over-selling’ the last crop, resulting in yet more importer demand switching back to the USA. The latter’s carryover stocks are arguably emerging as the main flashpoint, now forecast to plummet to just 3.25M tonnes by September from last year’s 14.3M tonnes and 2018/19’s 24.7M tonnes. The smallest stock since 2013/14 equals just 3.5% of demand, a worryingly low ratio. The global soyabean stock position is not much better – 83.4M tonnes at the close of 2020/21 would be the lowest since 2015/16’s 77.4M tonnes. World soya crush in 2015/16 was just 264M tonnes; this season, it is forecast to reach www.ofimagazine.com
John Buckley.indd 2
* Palm is refined Graph: John Buckley
Historic oilseed, oil and meal stock drawdowns during this marketing year remain the key driver of yet more, across-theboard price increases for the oils and fats complex in the opening months of 2021. Multi-year price highs (see Figure 1, right) have been further inflated by hopes that vaccination roll-outs will release the global economy from the shackles of COVID-19, recapturing the growth in food and transport fuel use of vegetable oils. Inflation fears have also helped stoke speculative interest in agricultural commodities. How far the boom continues will also depend heavily on producer response and, as always, that most unpredictable element – the weather. But for all the main feedstocks, the key question in coming months remains: can supply keep up with demand?
Figure 1: Crude vegetable oil prices at decade highs (US$/tonne, monthly averages) 322M tonnes. Soyabean futures, it might be noted, peaked in 2015/16 at around US$12/bushel. Recently, they went well past US$14. Overall this season, crushers in Europe are estimated to have paid about 38% more than in 2019/20 for their soyabeans while product prices are up by about 30% for oil and 44% for meal. By comparison, seasonal average sunflowerseed costs have jumped 54%, sunflower oil 51% and sunflower meal 44%. Rapeseed costs have risen by 17%, canola oil 23% and rapeseed meal 39%. Palm oil costs have also averaged about 42% more. Amid worryingly hot, dry weather, some Argentine private crop estimates have recently dropped as low as 44M tonnes versus the US Department of Agriculture (USDA)’s projection of 47.5M tonnes. Even if Brazil gets a record 130-135M tonnes crop, US farmers will need to at least match the big acreage increase expected of them this spring. The USDA’s recent annual Outlook Forum came up with a planted area forecast of around 90M acres (36.4M ha) versus last year’s 83.1M acres (33.6M ha). That could pave the way for a crop even larger than the two record 120M-plus harvests seen prior to 2019. Yet even that could indicate only modest easing in next season’s US carryout stocks. The snug supply outlook also suggests weather will remain at the front of market factors in coming weeks and months. Soya has also drawn support from firmer energy markets, helping CBOT oil futures hit a new multi-year peak of over US$1,200/tonne in March (see Figure 2,
p18). However, one downside risk factor not to rule out is the possibility that fresh outbreaks of African swine fever in China may spoil the largest soya consumer/ importer’s stated goal of a return to normal import demand by mid-year. The USDA has already trimmed its Chinese crush forecast from 99M to 98M tonnes.
Palm oil exports fall
Importers have recently shown signs of balking at increasingly expensive palm oil prices, which saw 13-year highs on Bursa Malaysia futures in March. It is a reminder that, for many developing countries, palm remains a choice based on value. At the same time, production may be on the road to recovery after COVID lockdowns, excessive wet weather and other seasonal factors resulting in months of output under-performing forecasts. January was a particularly depressing month for Malaysia, as its palm oil exports fell by a massive 42%, far more than production (down 15.5% on the month). All the big buyers – India, China, Europe, Pakistan – cut intake. February started more promisingly with hopes of a strong recovery ahead of the seasonal rise in consumption for Ramadan. However, trade deflated as the month wore on, finishing 5.5% down. Import declines were also seen by China (-26%) and Pakistan (-46%), putting their year-to-date imports down by 40% and 70% respectively. However, top buyer India’s February imports held steady. Malaysian exports to the EU also rose by 11% on the month but fell almost 38% on the year. That left Malaysia’s total u OFI – MARCH/APRIL 2021
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