FAO/GIEWS - Food Outlook No.1 - February 2001 p. 9

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Oilseeds, Oils and Oilmeals1/

Prices for oilmeals strengthen while oils/fats prices remain weak

During the 1999/2000 season (October/September), international prices for oils and fats were under downward pressure, attributed, mostly, to ample supplies relative to demand. By contrast, prices for oilseeds and oilmeals strengthened as the expansion in global supplies of these products came to a halt while demand continued increasing. With the onset of the 2000/01 season, prices for oilcakes and meals continue to rise, while prices for oils and fats remain depressed. In the first quarter of the season (October-December 2000), the average FAO price index for oils and fats felt to 75 points, the lowest level recorded since 1986/87. In the same period, the average index for oilmeal prices climbed to 99 points, 27 points above the near record low registered in mid-1999.

Based on information currently available, chances for a sustained recovery in prices for oils and fats in 2000/01 are limited, barring any unforeseen demand and/or supply shocks. This outlook is based on record opening stocks and the expectation that, as demand for meals continues to rise, a larger crush will contribute to increased supplies of oils/fats. Although demand for oils/fats is anticipated to increase, especially in Asia, this may not be sufficient to outweigh the impact of burdensome stocks and higher production.

The recovery in international prices for oilcakes and meals that started during 1999/2000 is likely to continue through the current season, a consequence of an expansion in demand that is forecast to outweigh the expected increase in supply. In Asia as well as Europe, demand for soybean and soybean meal is forecast to increase to record levels, a factor that should exert upward pressure on prices. However, the record soybean crop in the United States and the anticipated bumper soybean harvests in Brazil and Argentina during the current season are expected to prevent meal prices from rising drastically. The forecast increase in soybean production from the major producers in Latin America, if realized, would be a welcome relief, since supplies and export availability of the other major meals, particularly rapeseed and sunflowerseed, are expected to contract compared to the previous season. The extent of the upward movement of oilmeal prices during the current season will also depend on what happens to feed grain prices, particularly maize. Current expectations are for feed grain prices to continue on their recovery path during the season, which, if realized, would limit the potential of substituting feed grains for oilmeals.

International Prices of Oilseed-Based Products

    FAO indices of international market prices Average international market prices
Edible/soap fats and oils Oilcakes and meals Soybean a/ Soybean oil b/ Palm oilc/ Soybean meal d/
October/September (. 1990-92=100 .) (.................US$/tonne....................) 
1994/95 153 94 247 641 645 184
1995/96 140 128 303 574 544 257
1996/97 134 133 298 536 545 278
1997/98 154 116 256 634 641 197
1998/99 - Oct.-March 141 90 219 548 620 153
- April-Sept. 109 74 198 418 407 146
1999/00 - Oct.-March 98 87 206 374 356 176
- April-Sept. 84 90 213 337 318 184
2000 - Oct.- Dec. 75 99 209 317 257 207

Global oilseeds production to increase only marginally in 2000/01

World production of the seven major oilseeds in 2000/01 is forecast to expand by slightly more than 2 million tonnes, or 0.8 percent, to about 306 million tonnes, the smallest season-to-season percentage increase in recent years. Other than soybean, the output of most of the other major oilseeds is expected to fall compared to last season. Rapeseed and sunflowerseed production, in particular, are forecast to drop by about 10 percent each. Among major rapeseed producers, output in Canada, the EC and eastern European countries fell as rapeseed prices, relative to other crops, and high carry-in stocks led to land diversion. In India and Australia, unfavourable weather is the reason for the expected drop in production. By contrast, rapeseed output in China expanded markedly as farmers continued to enjoy better returns compared to grains. For sunflowerseed, most of the anticipated output contraction will be in Argentina where the area sown is estimated to have declined by as much as 37 percent from the previous season.

World Production of Oilseeds

(. . . million tonnes . . .)
Palm kernels

However, the forecast rise in global soybean output is expected to more than offset the forecast drop in production for the other oilseeds. The United States has harvested another bumper crop this season as farmers continued to benefit from the high soybean marketing loan rate relative to other crops, in addition to other favourable provisions contained in the 1996 Federal Agricultural Improvement and Reform Act. In Brazil and Argentina, area planted to soybeans is reported to have increased further and, assuming growing conditions remain favourable, record output could be achieved. Both countries have seen impressive growth in both area and production of soybeans in recent years due to a combination of factors that include favourable policy changes, increased profit margins to farmers and technological improvements. Likewise, soybean farmers in Bolivia and Paraguay are set to produce more of the crop. Although there are reports of a heat wave affecting some parts of Argentina during late December/early January, indications are that no significant harm has been done to the soybean crops as yet.

Supplies of both oils/fats and oilmeals to expand but at a sluggish pace

World production of oils and fats in 2000/01 is forecast to increase further, continuing the upward trend, but at a slower rate than what has been observed in recent years. Total production is currently expected to rise by a modest 1 percent to about 116 million tonnes. Soybean oil is expected to account for most of the anticipated increase in total oils production after a small drop last season. Nevertheless, the share of soft oils1/ in total output of oils and fats is projected to decline for the third consecutive year while tropical oils2/ production, as well as their share in global oils and fats output, is expected to reach record levels. The share accounted for by palm oil will likely reach 20 percent. Considering the expected sluggish expansion in production of oils and fats, global supplies of oils and fats in 2000/01 (including stocks at the beginning of the season) could experience a modest increase of about 1 percent to approximately 130 million tonnes. In comparison, total supplies jumped by about 4 percent in the two preceding seasons. For oilcakes and meals, world production, expressed in protein equivalent, is forecast to rise by about 2 percent, after a stagnation the previous season, to about 79 million tonnes. Almost all of the increase will be accounted for by soybean meal, which will more than make up for the anticipated drop in the production of most of the other meals. However, due to smaller carry-in stocks, global supplies of meals and cakes in 2000/01, expressed in protein equivalent, are forecast to stay close to previous season's level.

Consumption of oils/fats and oilcakes/meals to increase moderately

Total utilization of oils and fats is forecast to continue expanding in 2000/01, though at a reduced rate compared to previous seasons. As in past years, Asian countries, particularly China and India, will account for most of the expected expansion. A number of factors, including low prices, improving per capita incomes and higher population numbers will contribute to this increase. In terms of individual oils/fats, palm oil is expected to account for most of the increase, followed closely by soybean oil.

Consumption of oilcakes and meals in 2000/01 is also projected to expand. However, the gradual slow down in growth observed in recent years is expected to continue this season. During 2000/01, total world use of oilcakes and meals, expressed in protein equivalent, is forecast to reach about 80 million tonnes. As economic conditions continue to improve in some of the Asian countries that had been affected by the financial crisis of the late 1990s, the demand for meat has followed suit and, therefore, utilization of oilmeals in the region should continue increasing. In North America, the volume of oilmeal use is likely to remain virtually unchanged. Consumption of oilmeals in the EC is expected to expand due to its ban on the use of Meat and Bone Meal (MBM) in compound feed. For the entire 2000/01 season, the increase in EC oilmeal use, expressed in protein equivalent, is tentatively estimated at 0.4 million tonnes. The bulk of the increase is expected to consist of soybean meal. Also at the global level, soybean meal is forecast to account for most of the anticipated expansion in oilmeal consumption given that supplies of many of the other major meals will be limited in 2000/01. It should be pointed out that price developments, particularly soybean meal prices vis-à-vis feed grain prices, are likely to influence the volume of meal consumed during the season. Current indications are for feed grain prices to increase and the respective price ratio to decline, thus suggesting that some substitution of oilmeals for feed grain could occur during 2000/01.

Stocks of both oils/fats and oilmeals to fall but oils/fats inventories to remain burdensome

After climbing to new record levels in the last two seasons, closing stocks of oils and fats are forecast to fall during 2000/01, as global utilization of oils and fats is expected to exceed production by a small margin. Considering that global opening stocks are at above average levels, the anticipated decrease in inventories (and the resulting reduction in the stocks-to-use ratio) is not likely to lead to a sustainable recovery in vegetable oil prices. World end-of-season stocks of oilcakes and meals are forecast to be lower than their start-of-season levels for the second consecutive year, as global consumption is again expected to outweigh production. The corresponding drop in the stocks-to-use ratio is bound to sustain the upward support for prices during the season.

A small increase is forecast for international trade of oils/fats and oilmeals in 2000/01

Although global trade in oils and fats (including the oil contained in oilseeds traded) in 2000/01 is expected to increase by 1.3 percent to 51 million tonnes, the rate of growth would be significantly lower than in previous seasons due to high stock levels and/or increased production in several major importing countries. Furthermore, assuming that the recent decline in oils and fats prices comes to a halt during 2000/01, the incentive for importers to purchase oils and fats for stockholding purposes (as seems to have occurred during the last two seasons) should be reduced. From a regional perspective, Europe is expected to account for most of the forecast trade expansion, followed closely by Asia. India, which imported about 35 percent of its domestic oils and fats requirements during each of the last two years, will likely see its import purchases undergo another big jump irrespective of import duty hikes that have been targeted at curbing the recent surge in imports. In an effort to reduce the country's high dependency on imported oils and fats, the Government is expected to increase efforts to stimulate domestic production of oilseeds. Purchases by North America could be similar to last season's, while imports by China are expected to contract slightly due to increased domestic availability. Stimulated by low prices, trade in soybean and palm oils will likely expand the most during the season, while imports of rapeseed and sunflowerseed oils are forecast to decline due to reduced availability.

As far as export shipments are concerned, Malaysia and Indonesia, the world's leading exporters of tropical oils, could boost their export total by 7 percent to a combined record of 16.4 million tonnes. If realized, the two countries would account for over 30 percent of the global trade of oils and fats (including the oil contained in oilseeds traded) forecast for 2000/01. Shipments for a number of the soft oils are anticipated to decline during the season, mostly due to lower supplies. The

exception in that group would be soyoil, exports of which are forecast to rise further due to ample availability and higher global demand. It should be noted that stiff competition between palm oil and soyoil for market share is likely to continue during the current season.

Overall, trade in oilseeds products in 2000/01 is expected to be driven largely by the demand for oilmeals. World trade in oilcakes and meals (including the meal contained in oilseeds traded) during the season is anticipated to exceed 95 million tonnes, growing at a rate of about 1.6 percent, which, if it materializes, would be markedly below last season's rate. Factors contributing to this slow-down include slackened growth in overall oilmeal consumption, the prospect of increasing prices and the fact that China, which was responsible for most of last season's increase in trade, is projected to import less due to higher domestic availability. From a regional perspective, Europe, which accounts for over 40 percent of global imports of oilcakes and meals, is forecast to show the biggest increase in import shipments. This projected expansion in imports is largely based on reduced domestic supplies and EC's ban on the use of MBM. In the region of Asia as a whole, import requirements are forecast to stagnate - as opposed to last season's surge. On the export side, Latin America, primarily Brazil and Argentina, are poised to increase their share in the export market for soybean and soybean meal in 2000/01. Barring damaging weather conditions over the next few months, both countries are likely to see record soybean crops and, therefore, increased export availabilities. Regarding individual meals, the supply outlook suggests that soybean meal will account for the lion's share of the forecast increase in trade, since reduced supplies of most of the other meals, particularly rapeseed and sunflowerseed meals, will likely constrain their trade. Fishmeal exports are also likely to contract as supplies in Peru, the largest exporter, are expected to decline.

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