Oils and fats outlook
Global oils and fats production is projected to expand by only 1.5% to 209 million tonnes this year, compared to 206 million tonnes in 2016. Demand is expected to grow to 210.6 million tonnes. This will exceed supply because unfavourable weather conditions caused by El Nino will continue to have an impact on production recovery into the current year.
More than 30% of the world’s oils and fats requirements will be met by palm oil. The output is set to reach 64 million tonnes, up by over 3 million tonnes against 61 million tonnes in 2016. Malaysia’s CPO production, which went down by more than 2.6 million tonnes in 2016, is set to recover and exceed 19.3 million tonnes this year.
In the Americas, soybean production is likely to reach an all-time high in the three main producing countries. US output is predicted to exceed 110 million tonnes. Brazil and Argentina could produce a total of 160 million tonnes even though unfavourable weather is forecast for South America. Stock levels will therefore rise, and the stock usage ratio will be higher compared to 2016.
The World Bank foresees subdued growth and investment, shifting policies, heightened uncertainties and stagnant trade in the global market. All this will mark another difficult year for the world economy. Global growth in 2016 is estimated at a post-crisis low of 2.3%, but is projected to rise to 2.7% this year.
Growth in emerging markets and developing economies (EMDEs) is also expected to pick up. This assumption is on the basis of receding obstacles to activity for commodity exporters, and robust demand by commodity importers.
Weak investment and productivity growth will, however, weigh on medium-term prospects across many EMDEs. Downside risks to global growth include policy uncertainty in the main advanced economies and some EMDEs; financial market disruptions; and weakening of growth prospects.
However, fiscal stimulus and other growth-enhancing policies in key economies – in particular, the US – could lead to stronger-than-expected activity and deliver a substantial upside to the outlook. In view of limited room for macro-economic policy to absorb adverse shocks, as well as subdued scenarios, structural reforms that boost development remain a priority.
Advanced economies will continue to struggle with restrained growth and low inflation in a context of increased uncertainty in policy direction, as well as tepid investment and sluggish productivity. Activity has decelerated in the US and, to a lesser degree, in several other major economies. As a result, growth in advanced economies is estimated to have slowed to 1.6% in 2016, a downward revision of 0.1 percentage point.
There is potential for this to improve to an average pace of 1.8% throughout the forecast period. In the US, manufacturing activity is expected to rebound, contributing to a modest pick-up in growth from 1.6% in 2016 to an average of 2.2% this year. This forecast does not incorporate the effects of policy proposals by the new US administration, as their scope and ultimate form remain unclear.
Fiscal stimulus, if implemented, could result in stronger outcomes than currently predicted. In the Euro zone and Japan, supportive monetary policies will help stimulate activity throughout the forecast period. Inflation is expected to rise gradually, but will remain below anticipated levels in most countries.
Factors such as the price of crude oil and drastic changes in weather patterns will have a direct effect on the price of palm oil. This will be mitigated by continued high demand for palm oil as a source of food. Consumption as biofuel feedstock will also go up due to a higher biodiesel blending requirement in the Americas, and Indonesia’s commitment to a 20% blending requirement in its biodiesel production. The price of palm oil is therefore expected to be sustained, if not improved, over the year.