Other vegetable oils
Overall for 2016, we are not going to see improvement in the availability of high oil-bearing seeds like sunflower and rapeseed. We entered the year with big stocks of soybean, but most analysts believe soybean acreage in the US and Argentina will decline.
The anticipated decline in soybean prices as a result of devaluation in Argentina has not happened. Instead, demand for soybean has been very strong at its current price level of around US$9 per bushel. Soybean oil prices have held up quite well, despite less than impressive demand from countries other than India.
We must expect soybean oil to continue to take market share from sunflower oil and, to some extent, also from palm oil, particularly if palm oil prices begin to narrow the discount to soybean oil. The reinstatement of the Blenders’ Credit in the US has yet to make its effect felt on soybean oil futures in Chicago.
Source: GGN Research
Rapeseed/Canola
The outturn in Canada has surprised us by the recovery of the 2015 crop. In India, the outlook for rapeseed-mustard is better than we had expected and the crop is likely to be an improvement over the disastrous crop of 2015.
One cannot be too sure about Canadian plantings for the 2016 crop and Europe will definitely produce less rapeseed in 2016 than in 2015. The main reduction appears to be in the Ukraine.
Sunflower oil
Sunflower oil priced itself at too much of a premium and is steadily losing market share to soybean oil. This is despite very weak currencies in the Ukraine and Russia. Sunflower is the most fragile of all the major oilseeds and therefore we must keep our fingers crossed that the Ukraine and Russia will again produce big crops in 2016.
Lauric oils
Coconut oil production has not recovered as much as expected. Some of the loss is due to a long-term shift towards farming younger coconuts for coconut water rather than for copra and oil. This may tighten the supply of copra and coconut oil. Palm kernel production has suffered in line with CPO production.
The end result is that both lauric oils are far too expensive. Oleochemicals are losing ground to petrochemicals and this is not good for the long-term health of our industry.
Vegetable oil demand
The world’s ‘swing consumer’ is India and it is in this market that price relationships between oils are determined. Table 4 shows that India’s imports have soared by almost 50% over the period 2011-12 to 2015-16. The volume of palm oil increased by only 25%, while soybean oil recorded an increase of almost 400%.
This year, if India has a good rapeseed crop, local demand for soybean oil may weaken; that will give palm oil a chance to regain some market share. Higher prices may also curb the projected growth in per capita consumption, but this is all work in progress.
China continues to concentrate on soybean imports and to crush locally for oil and meal. The feature of 2015 was the fall in its vegetable oil imports. These are unlikely to recover in 2016, but will also not decline much further. China has been releasing significant volumes from its massive 6 million tonnes in reserve stock of rapeseed oil. This is a new development and affects the world’s incremental supply and demand situation. It is a step in the right direction.
I also estimate that world energy demand will expand in 2015-16 by more than my previous estimate of 1.5 million tonnes. The US EPA has already announced its proposals. The Indonesian biodiesel programme is now functioning well.
However, I hope that the Indonesian biodiesel programme will be implemented in a flexible manner to ensure remunerative prices for oil palm growers, but without impoverishing the millions of loyal consumers of palm oil in the developing world.
Low prices gave us a robust increase in food demand by 4 million tonnes in 2014-15. Growth in 2015-16 will be tempered by higher prices, likely by 3 million tonnes only.
The gap between incremental supply and incremental demand will turn out to be almost a record 4.2 million tonnes. World stocks will be drawn down dramatically. We are already seeing this happen with palm oil in Malaysia and will see it soon in Indonesia as well. Stocks in consuming countries like India and China will thin down. This will have a profound impact on vegetable oil prices for the rest of the year.
A shortfall of almost 4 million tonnes inevitably leads to rising prices. The higher prices will impact on consumption and demand from price-sensitive markets like India, Bangladesh, Pakistan and parts of Africa. Eventually we must reckon that the net shortfall and stock draw-down may narrow down to about 3 million tonnes only.
