INTERNATIONAL MARKET REVIEW
The bad news for vegetable oil consumers has piled on week after week since our New Year review. Not only are prices rocketing amid a perfect storm of lost production among three of the four most used oils – palm, rapeseed and soyabean; now a geopolitical supply disruption has emerged for the once relatively plentiful fourth member, sunflower oil. Will record prices across the sector slow food oil consumption just as industrial biodiesel use gains new lustre from soaring energy markets? And what impact will all this have on producers’ planting plans? How will US farmers exploit Latin America’s La Niña crop losses? A few months ago, most analysts appeared to play down prospects for a major hit to Latin American soyabean crops from a La Niña spell. Brazil was expected to produce a record 144M tonnes, Argentina as much as 51M tonnes and Paraguay 10.5M tonnes, all sowing more in response to the past season’s nine-year highs in prices. Dryness and heat waves have now slashed analysts forecasts, some running as low as 121M, 38M and 4M tonnes respectively for the three main producers. Some untimely rain in harvest-ready Brazilian regions has been a mixed blessing, raising risks of a yield or quality hit, offsetting the more bearish impact of a crop maturing and arriving on the market earlier than usual. Even if some of these countries manage to produce a little more than the lowest estimates, it is clear export supplies of both raw soyabeans and their oil will be far below what was expected at the turn of the year. The response on the markets has been dramatic, Chicago Board of Trade (CBOT) nearby futures have rocketed from little more than US$12/ bushel at the end of 2021 to over US$17/bushel recently. How will American farmers respond? The US Department of Agriculture’s recent Outlook Forum put a figure of 35.6Mha on the 2022 planted area. Assuming a normal planted/harvested ratio and yields not far off last year’s average result, the crop might be around 12218 OFI – MARCH/APRIL 2022
John Buckley March.April 2022.indd 2
Perfect storm driv
Figure 1: Crude vegetable oil prices apart from refined palm oil (US$/tonne) 124M tonnes compared with last year’s 120.7M tonnes. Even if the Latin American crops had fared better, they would not have added much to the relatively low US carryover stocks foreseen for the close of the season. However it would not be so surprising to see farmers planting if prices stay high. Looking to the futures markets, soyabeans are expected to stay firm at least until the next US crop arrives. Moving targets on the demand side are US crush, which has been strong recently, partly to feed meal exports and partly due to rising domestic soya biodiesel demand. The latter sector is expected to expand its needs by almost one quarter this season to a record approaching 5M tonnes – about 43% of US total domestic ‘disappearance’. Another spur driving soyabean oil price strength has been a burst of demand from large edible oil importers such as India, as it faces tightening supplies and soaring costs of usual staples like palm, sunflower and rapeseed oils. After peaking in the US$1,730s, US soyabean oil futures were trading near US$1,650/tonne as we went to press against US$1,170 in late December. CBOT soyabean futures have also enjoyed a revival in demand from top buyer China. Although the USDA has been working on the basis that Chinese imports may ease back by almost 5.8M tonnes to some 94M tonnes, the country has been a constant buyer recently, driven by fears that larger Latin American crop losses will interrupt its supply.
Graph: John Buckley
With lost production hitting the three main vegetable oils – palm, soya and rapeseed – prices are rocketing, with once plentiful sunflower oil supplies now in question because of the RussiaUkraine war John Buckley
Brakes off palm oil
Ideas that record palm oil prices would destroy demand looked a little premature as the combination of crop losses and extra demand in competing oil sources – not to mention the strongest energy market in a decade – played into the bullish narrative for palm oil in first quarter 2022. Official Malaysian Palm Oil Board data showed second largest palm oil supplier Malaysia recording a bigger fall in February’s exports than the markets expected – some 18.7% on the month – and closing stocks eroded by 3.85% to about 1.55M tonnes, their lowest level since July 2021. Imports fell on the month to all major consumers and many smaller customers as well. But while the early February export data was unpromising, things seem to have picked up since – with a 15% bounce in early March. Output usually starts to pick up seasonally in March, rising by 28.5% last year. Price support came from reports that cuts in import taxes in India – the world’s largest vegetable oil buyer – might stimulate more demand as it struggles with rising food price inflation. The risk of disruption to Ukrainian sunflower oil shipments (and tight rapeseed oil supplies after last year’s poor Canadian crop) also appear to have blunted the impact of palm oil price rises. The biggest upset for palm oil in the last quarter was top supplier Indonesia moving to curb its exports to protect its domestic food oil consumers from soaring prices – for which the country’s ambitious biodiesel www.ofimagazine.com
23/03/2022 11:25:23
