FAO/GIEWS - Food Outlook No.4 - September 1999 p. 10

OILSEEDS, OILS AND OILMEALS^1/

• Prices for oils and fats as well as cakes and meals under strong downward pressure
• Record production and supplies of oilcrops and related products confirmed for 1998/99
• Global utilization of oilcrop-based products expanding during 1998/99, albeit at a slower pace
• Stocks of oils and fats as well as cakes and meals to reach new records
• Reduced growth of trade in oilcrops and related products in 1998/99
• Further planting increases in 1999/2000 possibly leading to record production for third consecutive year

Prices for oils and fats as well as cakes and meals under strong downward pressure

Prices for oils and fats have come under strong downward pressure since the beginning of 1999 and are not likely to recover during the remainder of this year. For the trimester May-July 1999, the FAO price index for oils and fats fell to 110 points, compared to 160 points during the same period last year. Main factors contributing to this development include: abundant harvests of high oil-yielding crops in 1998/99 (Oct./Sept.); the increase in the oil stocks-to-utilization ratio anticipated for this season; and the prospect of a full recovery in palm oil production and export availability during the remainder of this season and during 1999/2000. Prices for oilcakes and meals also deteriorated during this season. The FAO price index for cakes and meals averaged 83 points during the first ten months of the current season (October 1998 to July 1999), as opposed to a comparable 120 points in 1997/98, a decline of over 30 percent. At 71 points (in May-July 1999), the price index reached its lowest level since 1985. The main reasons leading to this development include: the recent large harvests of (high meal-yielding) soybean crops in South America; continued competition from relatively low-priced feed grains; and the sharp rise in oilmeal stocks expected for this season, together with the anticipation of above average stocks-to-utilization ratios for meals. A further decline in the oilmeal price index in the coming months appears unlikely, considering that global production of grains is anticipated to fall in 1999, along with a reduction of the cereal stocks during the 1999/2000 season.

INTERNATIONAL PRICES OF OILSEED-BASED PRODUCTS

SOURCE: FAO

Record production and supplies of oilcrops and related products confirmed for 1998/99

Global production of the seven major oilcrops in 1998/99 is estimated at almost 310 million tonnes, a new record after the 305 million tonnes reached in 1997/98. The rise in output is mainly on account of increases in the production of sunflowerseed (mainly in Argentina and the United States), groundnut (China and India) and rapeseed (EC, Canada and Australia), which more than offset reduced production in cotton seed (United States and some Asian countries) and copra. Global soybean output is estimated to remain unchanged compared to 1997/98, with reduced - but still above average - crops in South America being offset by a record crop, for the second consecutive year, in the United States.

The crop production estimates translate into a record global production of oils and fats of around 109 million tonnes in 1998/99, compared to 104 million tonnes in the previous season. The expansion in total output is mainly on account of increases in two high oil-yielding crops, sunflower and rapeseed, together with a recovery in palm oil production in calendar year 1999. Similar to previous years, soft oils (this group of oils comprises soybean, rapeseed, sunflowerseed, cottonseed, groundnut and olive oil) are estimated to account for 53 percent of global output of edible/soap oils and fats, palm oil for 17 percent, lauric oils for 5 percent and marine oils, animal and other fats for the rest. As a consequence of the rise in overall output, global supplies of edible/soap oils and fats in 1998/99 are expected to be 3 percent higher than in 1997/98, despite a lower stock level at the beginning of the 1998/99 season. World production of cakes and meals is estimated to increase to nearly 76 million tonnes (throughout this note, figures referring to oilcakes and meals are expressed in protein equivalent), rising a further 3 percent from the bumper level recorded in the previous season. The increase in output will mainly be on account of the record rapeseed crop and a recovery in fishmeal production, while world production of soyameal is estimated to remain unchanged. Global supplies of cakes and meals in 1998/99 are expected to be about 4 percent above the previous season's level, supported by the recovery in the volume of stocks at the beginning of the season.

Global utilization of oilcrop-based products expanding during 1998/99, albeit at a slower pace

Global utilization of oils and fats is forecast to continue to expand in 1998/99, albeit at a reduced race compared to the preceding season, reaching 107 million tonnes. Relatively high prices compared to the first half of the 1990s and the economic crisis that has affected several countries since 1997, explain the relatively modest increase in global demand. With respect to the composition of global consumption, the share of rape and sunflowerseed oil is forecast to increase this season, while the share of soyaoil, though still the highest in absolute terms, is expected to fall slightly. Stimulated by the sharp decline in prices for oilcakes and meals from early 1998 onward, global utilization of cakes and meals is expected to continue expanding in 1998/99, reaching 74 million tonnes. The United States, faced with abundant supplies and less favourable export prospects, is expected to account for over half of the increase in global consumption, with utilization reaching a record level of 14.6 million tonnes (in protein equivalent). Largely driven by the very attractive prices offered by South American meal exporters and low prices on the domestic market, demand for oilcakes and meals in the EC is anticipated to expand to a record level (18.5 million tonnes), as feedmillers are lifting the content of oilmeals in feed rations to above average levels. By contrast, in Asia, where high consumption growth rates were recorded in recent years, utilization is anticipated to grow only marginally, as the markets are still recovering from the effects of economic crisis which has slowed down the expansion in the consumption of meat as a more income sensitive good.

Stocks of oils and fats as well as cakes and meals to reach new records

Based on the supply and demand estimates for the 1998/99 season, global stocks of oils and fats at the end of the season are expected to recover from last season's level and reach a new record, as the level of total utilization is expected to remain below that of production. Particularly in the United States and Malaysia, stock levels are anticipated to exceed the average of recent years. By the end of the season, the stocks-to-utilization ratio is also expected to increase, thus contributing to strong downward pressure on international prices for oils and fats. With 1998/99 production of cakes and meals forecast to exceed utilization by almost 1.5 million tonnes, global stocks of cakes and meals are estimated to increase further, probably reaching a new record by the end of the season. The anticipated 20 percent rise from last season's (above average) level mainly reflects a sharp increase (plus 115 percent) in soybean stocks in the United States. The global stocks-to-utilization ratio for cakes and meals is expected to rise above the average of recent years, thus contributing to the significant decline in international prices for oilcakes and meals observed since the beginning of this year.

Reduced growth of trade in oilcrops and related products in 1998/99

In 1998/99, world trade in oilseeds and products is expected to grow at a reduced rate compared to the two previous seasons. Despite the fall in prices for major oils, total trade in oils and fats (including the oil content of oilseeds traded) is forecast at 45 million tonnes, up only 1 percent from last season, because of the predominant influence of weak demand at the global level. The pattern of imports is likely to remain unchanged, with most of the expansion originating in Asia. In India, imports are anticipated to rise by as much as 50 percent. Factors contributing to this surge include government efforts to gradually liberalize the import market and reductions in import tariffs. China, which is anticipated to further expand its imports, is likely to satisfy a relatively large portion of its requirements through the importation of high oil-yielding seeds (in particular rapeseed), while reducing purchases of oils and fats. In all other regions, import volumes are expected to remain about unchanged. On the export side, the volume of total shipments from the two main export markets, Asia and North America, is anticipated to stagnate or fall slightly. While exports of palm oil are likely to resume expansion as the main producing countries are recovering from last season's unprecedented production decline, coconut oil production and exports are expected to recover only later this year. In China, a net importer, combined shipments of oilseeds and oils are likely to fall further. In the United States, export sales of oils and fats (including oil contained in exported oilseeds) are anticipated to decline by over 8 percent in 1998/99 compared to the previous season, mainly a result of increased competition from South American exporters.

World trade in cakes and meals (including the meal contained in oilseeds traded) is expected to rise by about 2 percent to 37 million tonnes in 1998/99, mainly on account of higher rapeseed meal and fishmeal shipments, while trade in soybean cake is expected to fall short of last season's record level. Purchases by the world's two main import markets for cakes and meals, Asia and the EC, are anticipated to continue expanding this season, mainly stimulated by low international prices and because countries in Asia are gradually recovering from the effects of the economic crisis experienced during 1997/98. In China, a relatively large part of this season's meal import requirements is likely to be covered through the importation of seeds, again reflecting government efforts to support the local crushing industry. On the export side, meal shipments from South America (including meal contained in exported oilseeds) are expected to further expand, due to abundant supplies and because of Brazil's export advantage following its currency devaluation earlier this season. Increased competition from South American exporters is also responsible for the anticipated 17 percent drop in total cake and meal shipments from the United States.

Further planting increases in 1999/2000 possibly leading to record production for third consecutive year

Total area devoted to oilseeds is likely to expand further in 1999/2000, mainly in soybeans and rapeseed. In the northern hemisphere, plantings for the new season are estimated to have exceeded last season's level, despite the current situation of ample supplies and depressed prices for the majority of oilcrops and their products. Main factors behind this development include that planting decisions for some crops were taken at a time when prices were still relatively high, the rise in the EC's compulsory set-aside rate, which stimulated oilseed production for industrial uses, and the increased attractiveness of government payments under farm income protection schemes in the United States and EC. Considering the support payments available for the various crops and price expectations for oilseeds during 1999/2000, producers seem to expect relatively high returns from oilcrops relative to competing crops during the next season. By contrast, in the southern hemisphere, where oilseeds will be planted later this year, the area sown to oilseeds is anticipated to remain unchanged or fall slightly, as producers are likely to respond to continually low market prices and less favourable economic conditions. Based on the expectation of an overall increase in next season's plantings, global oilseed output could - provided weather conditions are favourable - expand by another 3-4 percent, setting a new record for the third consecutive year. Strong production increases are also expected for palm and lauric oils, following the sector's full recovery from adverse weather conditions in preceding years. Global demand for and trade in oils and fats could also grow considerably next season, as ample supplies and further increases in stocks could push prices further down. By contrast, the oilcakes and meal sector is likely to be affected by the anticipated slow-down in global livestock production, which may affect major importers like China and the EC.