Food Outlook - April 96

OILSEEDS, OILS AND OILMEALS

World output of oilseeds, oils and oilmeals to fall in 1995/96 season

Production of the seven major oilseeds for the 1995/96 season is expected to reach 255 million tons, 3.8 percent below the record crop in 1994/95 (Table A.16). A drastic fall of nearly 11 percent (14.7 million tons) is anticipated in the global production of soybeans, caused by unfavourable weather conditions which adversely affected yields and output in the United States, China, Brazil and Paraguay. Reductions are also estimated for the production of groundnuts, coconuts and olives. These reductions are, however, likely to be largely offset by significant expansion of output of high-oil-content oilseeds (nearly 4 percent for cottonseed, 7 percent for sunflower and 13 percent for rapeseed).

World soybeans production is forecast at 123.4 million tons, the second largest crop on record, but almost 6 million tons less than the expected consumption needs in 1995/96. As a result, the end-of-season stocks are likely to be around 6 million tons lower than in the last season, resulting in the lowest stocks-to-usage ratio since 1979.

The 1995/96 output of soybeans in the United States (harvested from September to November 1995) is estimated at 58.6 million tons, down from the 68.5 million tons in the previous season, largely due to heat damage which affected the yields. The Brazilian harvest, which started in March 1996, is forecast at 23 million tons, nearly 3 million tons less than last year because of lower yields, partly due to drought at the end of 1995 and reduced usage of inputs by farmers. China's production (harvested from August to November 1995) is also estimated to have fallen by 3 million tons to about 13 million tons due to weather problems. These sharp reductions in soybean output have only been partly offset by record output in India, where the crop is estimated to have risen by 25 percent to reach 4.6 million tons, on account of a very large increase in area planted and excellent growing conditions.

Global production of cottonseed in 1995/96 is forecast to rise by 3.6 percent above the previous season to 34.8 million tons, with larger harvests mainly in India, Pakistan, Turkey and Australia due to increased plantings and good yields resulting from favourable weather. By contrast, output in the CIS and China stagnated and there was a steep drop in the United States caused by adverse weather conditions, despite a very large boost in the area planted.

World production of rapeseed is estimated at 34 million tons, 13 percent above that of the previous season. Excellent growing conditions and yields resulted in output increments of 25 percent above the last season in China, of 22 percent in the EC (part of which was also due to increased plantings) and of over 3 percent in India. By contrast, output in Canada fell 11 percent, due to the decrease in plantings and slightly lower yields.

The sunflowerseed harvest is anticipated to be 7.5 percent above the previous season, reaching nearly 26 million tons in 1995/96, mainly on account of the 62 percent higher output in the CIS from both increased areas and better yields. Harvests in the other three major sunflowerseed growing countries, i.e. Argentina, EC and the United States, are estimated to fall substantially owing mainly to unfavourable weather, while the China's production is likely to remain at last season's volume.

Sizeable decreases in the groundnut crop in the United States (nearly 16 percent below last season's level) and India (15 percent less than last season's output) due to yield damage caused by adverse weather conditions have led to a decline in the world production of groundnuts to 27.2 million tons in 1995/96, nearly 6 percent below last season's record.

World production of copra in 1995/96 could fall by about 6 percent from the previous year to 4.9 million tons in calendar year 1996, following the expected sharp decline in the output of the Philippines. The fall in the Philippines' copra production is a combined result of the downtrend of the biological yield cycle of the coconut trees and the lagged effect of the dryness which occurred during June 1994 to June 1995.

World production of palm kernels could increase slightly to 4.8 million tons in the calendar year 1996, following the increase in Malaysia's output.

As a result of the production developments described above, world output of edible/soap fats and oils in the 1995/96 season is expected to fall slightly to 93.7 million tons, from 94.1 million tons last season (Table A.15). To meet global consumption needs in 1995/96, anticipated to be somewhat higher than new crop production, a moderate drawdown of stocks will be required.

World output of oilmeals, expected at 61.6 million tons protein equivalent in 1995/96, would be about 5 percent below last year's record. Most of the decrease is on account of lower soybean meal and fishmeal output. The decline is expected to be only partly offset by the prospective rise in rapeseed meal production and some expansion in cotton and sunflower meal outputs. Ample opening stocks should, however, provide sufficient world supplies of protein meals in order to cover the anticipated consumption needs this season.

High prices in soybean-complex affecting prices of the other oils and oilmeals

Due to their high meal content, soybeans prices are determined principally by the price of soybean meal. The rising demand for soymeal, mainly from Asian countries, coupled with the fall in soybean harvests in the United States, China and Brazil, boosted soybean prices to an average of U.S.$ 248 per ton during 1994/95 season and to U.S.$ 292 per ton during the first half of the 1995/96 season. In the same periods soybean meal prices averaged U.S.$ 184 and U.S.$ 242 per ton respectively. However, the increased soybean crushings in 1994/95, mainly to satisfy the demand for meal, have led to large oil stocks, causing soybean oil prices, already under pressure from abundant rapeseed, sunflower, cottonseed and palm oil supplies, to fall significantly by the end of the last season.

INTERNATIONAL PRICES OF OILSEED-BASED PRODUCTS, 1990-1996

International market prices of edible/soap oils and fats during the first half of this season (October 1995 to March 1996), as measured by the FAO Index of International Prices, was 8 percent lower than during the first half of the previous season, and 5 percent below the 1994/95 average.

The tight soybeans stock situation should limit any further decline in prices of soybean oil until the end of the season, and could possibly lead the way to an increase, in case consumption should exceed expectations or crops fail. Prices of coconut, olive and marine oils are also expected to increase further due to the tight supply situation, while the rise in prices for palm and rapeseed oils is likely to be mitigated by ample supplies. As a result of these price developments, the premiums for soybean oil over other oils are expected to rise further, in particular vis-à-vis palm and rapeseed oils.

Prices for oilmeals, supported strongly by the high grain prices, by the sustained demand for compound feed and the smaller soybean harvest combined with reduced groundnut and copra crops, have risen sharply since the beginning of the season. International prices for soybean meal increased by over 32 percent during the first half of this season over the corresponding period of the last season and by about 24 percent over the average 1994/95 price.

Consumption of oils and oilmeals to decrease in 1995/96, curbed by tight supplies and high prices

World apparent consumption of oils and fats in 1995/96 is expected to rise by 3.5 percent (compared to 4 percent in 1994/95) to reach nearly 94 million tons, supported by growth in world population and income, as well as by the continued subsidization of non-food usages of rapeseed and sunflower oils in the EC. Demand is likely to grow faster in developing countries, in particular Asia and Latin America, than in the developed countries, while the decline in demand for oils and fats recorded in eastern European countries and, in particular, in the CIS may come to a halt in 1995/96. The sharpest increase in consumption is expected for rapeseed and palm oils, i.e. for the oils which would be the most attractively priced. Modest increases in consumption are forecast for most other oils, with the exception of soybean, coconut, olive and fish oils. Overall, in 1995/96 palm and rapeseed oils are expected to win back market shares previously lost to other oils, in particular soybean oil. As for animal fats and oils, the downward trend in their share of total consumption is continuing.

World consumption of oilmeals, estimated to have increased by 8.7 percent in the 1994/95 season, is forecast to rise by only 2 percent in 1995/96. The limited anticipated increase in consumption is a result of the combined effects of the reduction in oilmeal supplies and of the increase in the oilmeal prices triggered by the higher grain prices. Asian and Latin American countries are expected to account for most of the expansion in consumption, while commodity-wise the rise in consumption over the previous season would be more pronounced for rapeseed meal than for soybean meal.

Stocks expected to decrease more drastically for oils than for oilmeals in 1995/96

By the end of the 1994/95 season, world stocks of oils and fats had fully recovered from the low level of the previous season, as total supplies exceeded world consumption by far. In 1995/96, however, production of oils and fats from the new crop is likely to be insufficient to meet the anticipated increase in consumption. Consequently, stocks of oils and fats are foreseen to be drawn down and the stocks/usage ratio would decline.

By autumn 1996, world stocks of oilmeals are expected to shrink to about two-thirds of their level at the end of the last season, as production of soybean meal in particular would fall short of the anticipated consumption needs.

Oils/fats and oilmeals trade to decline in 1995/96

After the considerable expansion in 1994 and 1995, world trade in oils and fats could decline to 32.6 million tons in 1996. The decline in world net exports would be mainly due to the anticipated decrease of about 3.5 million tons in export availabilities of soybean oil from Argentina, Brazil, Paraguay and the United States. Exports of palm and rapeseed oils are foreseen to expand due to ample supplies and rising price discounts, while shipments of soybean and groundnut oils would be constrained by their reduced availabilities and expected higher prices. In several countries, import requirements are likely to be reduced as a result of ample domestic harvests and substantial carryover stocks following large imports in the last two seasons - a situation applying primarily to countries in Asia. Should petroleum exports from Iraq resume in 1996 it may result in additional imports of 250 000 to 300 000 tons of vegetable oils into that country if expected consumption needs were to be met.

Net export in oilmeals in 1996 is expected to decline slightly from the previous season's record of 34.5 million tons, due to lower export availabilities of soybean, fish, groundnut and copra meals in the major exporting countries.

Outlook for oilseeds market in 1996/97

World plantings of annual oilseeds crops might stagnate in the 1996/97 season, in particular in the United States, Canada and possibly China, as the high prices of cereals are expected to lead to an expansion of competing grain plantings at the expense of oilseeds. Unless soybean prices improve relative to maize, or adverse weather causes delays in maize plantings, which ultimately would result in switching area back to soybeans, the next season's soybean plantings in the United States could decrease by up to 1 million hectares (3 percent) compared with last year. Likewise, plantings of oilseeds in Canada could decrease by nearly 15 percent in favour of grains.

Lower production of oilseeds and a continued growth of demand for oilmeals and oils, even at a slower rate than during recent years could lead to a further tightening of stocks. Therefore, the outlook for the world soybeans market in 1996/97 is for firm prices which would also support prices of most other oilcrops. In these circumstances, markets will be extremely sensitive to weather conditions next season, as well as to the fluctuations of the US dollar, and these two factors could contribute to high price volatility for all oilseed-based products.