|No. 4||Rome, December 2004|
Oilseeds, Oils and Oilmeals1/
The FAO price index for oilseeds reached a high of 157 in April 2004, but then started to fall and by October was down by almost one third, at 104. The price fall largely reflects a 27 percent increase in soybean production in the United States in the current 2004/05 marketing season that has resulted from large plantings and record yields. The relatively high meal content of soybeans has inferred more downward pressure on meal versus oil prices. The demand for oils remains firm. The upcoming response from southern hemisphere countries will have a large effect on markets for the remainder of this marketing season, as they now represent a large portion of total supply potential.
During most of the 2003/04 season 2/ prices in the oilseed, meal and oil complex continued to experience a strong upward trend as production shortfalls and exceptionally low stock levels coincided with sustained growth in demand. However, since April-May, prices for oilseeds and meals have come under considerable downward pressure due to the prospect of a strong recovery (and possibly record performance) of global oilseed production during 2004/05, particularly with respect to soybean, the oilcrop with the highest meal content. By contrast, prices for oils remained relatively firmer as the increase in oil production anticipated for the current season will not be sufficient to allow - after satisfying increased demand in oil for food as well as non-food uses - a significant replenishment of global oil inventories. Overall, the supply and demand fundamentals seem to indicate that the value share of oil in the combined (oil/meal) product is likely to increase during 2004/05.
The diverging price trend observed between the oilseed and meal sector and the oil complex is expected to prevail during the first half of the current marketing year. Prices for meals may stabilize at the relatively low levels recorded prior to 2003/04, as supplies may exceed demand given that the incentive for crushing oilseeds will derive from firm oil prices. International prices for edible/soap oils, although not returning to the high levels observed at the beginning of 2004, are expected to remain above the average of the three preceding years. However, the outlook remains tentative considering that, in South America, the planting of oilseeds crops has not been completed yet. In fact, in addition to the usual weather related uncertainties, it still remains to be seen how that region will respond to the current slump in oilcrop prices and to prospective increases in production costs.
International Prices of Oilseed-Based Products
Source: FAO, Oil World
a/ Soybean, US, cif Rotterdam. b/ Soybean oil, Dutch, fob ex-mill. c/ Palm oil, crude, cif N.W. Europe. d/ Soy pellets, 44/45%, Argentina, cif Rotterdam.
Global oilseed production is currently anticipated to increase at an unusually high rate of 12 percent during the 2004/05 crop year. The bulk of this increase (i.e. close to 90 percent) is expected to come from soybeans, for which current forecasts point toward an expansion in production of at least 20 percent. The four major soybean producing countries (the United States, Brazil, Argentina and China) are all estimated to harvest record crops after the marked fall in output in the previous season. The biggest percentage increase (27 percent) is reported from the United States, where an increase in plantings has coincided with record yield levels. Also global rape and cottonseed output is projected to increase, reaching new record levels, whereas global production of both groundnut and sunflowerseed is expected to fall; the latter decrease - after last year’s sizeable expansion - mainly reflects poor crops in India (groundnut) and CIS countries (sunflowerseed) where weather conditions have been unfavourable. In South America, where oilcrops are now being planted, aggregate soybean output is tentatively forecast to grow by about 20 percent. The latter estimate is based on reports that the area planted is increasing as well as on the expectation that yields will return to average levels as farmers are prepared to fight against the outbreak of Asian rust. However, at this point, South America’s final outturn remains uncertain as the farmers’ planting decisions are still under the influence of recent and prospective price developments as well as uncertainties regarding the likely increase in production costs for soybeans.
World Production of Major Oilseeds
Note: The split years bring together northern hemisphere annual crops harvested in the latter part of the first year shown, with southern hemisphere annual crops harvested in the early part of the second year shown. For tree crop, which are produced throughout the year, calendar year production for the second year shown is used.
Based on current crop forecasts, global oil production is anticipated to grow by about 6 percent during 2004/05 - considerably less than the anticipated expansion in seed output because the bulk of that expansion is expected to come from low oil-yielding soybeans. The main driver behind the anticipated increase in oil production will be palm oil, output of which is forecast to resume normal growth in 2005 after the slight slowdown observed this year. Global supplies of oils and fats (i.e. 2003/04 ending stocks plus 2004/05 production) are forecast to grow by about 6 percent compared to last season.
Regarding oilmeals and cakes, after last season’s drop, global output is forecast to increase sharply (i.e. 15 percent compared to an average of 3 percent during the past four seasons), mainly reflecting - as in most past years - the anticipated sharp rise in soybean production. The latter, together with the anticipated rise in rape and cottonseed meal output, will easily offset the expected fall in sunflower meal. With regard to global supplies, the increase over last season is estimated to remain below 10 percent due to this season’s exceptionally low level of carry-in stocks.
Oilseeds and products: Global supplies, trade and utilization
Note: Refer to footnote 1/ in the text for further explanations regarding definitions and coverage.
1/ Includes oils and fats of vegetable and animal origin. 2/ Production plus opening stocks. 3/ Residual of the balance. 4/ Trade data refer to exports based on a common October/September marketing season. 5/ All meal figures are expressed in protein equivalent. Meals include all meals and cakes derived from oilcrops as well as fish meal.
During 2004/05, global consumption of oils and fats is forecast to expand further, rising at an about average rate of 5 percent. The main motor behind this growth continues to be sustained income increase in China, India and other countries in South and Southeast Asia as well as in South America and some eastern European states. Utilization of soy and palm oil is anticipated to increase the most while consumption of sunflowerseed oil is likely to fall. Demand for non-food purposes, notably the production of biodiesel, is expected to account for an increasing share of total demand. Production of oilcrop based biodiesel is seen expanding worldwide as some countries - notably the EU and recently also the United States - are implementing policies to stimulate production and consumption of biofuel, with the result that additional capacities to produce such product are coming on stream. Clearly, the recent surge in petrol prices is contributing to this development. According to private sector estimates, in the EU-25, some 10-15 percent of vegetable oil production (in particular rapeseed oil) could be used as biodiesel this season.
Global consumption of oilmeals and cakes is anticipated to rise 4 percent in 2004/05, based, inter alia, on the assumption that demand will be stimulated by a fall in prices. Such a development is anticipated because, during 2004/05, in order to satisfy the rapidly growing demand for oils/fats and in view of the limited supplies of oil-rich crops (notably sunflowerseed and groundnut), the industry will have to resort to crushing soybeans and other high meal-yielding oilcrops. The resulting surplus of supplies over demand is expected to lead to a fall in prices. Country-wise, consumption growth is expected to be concentrated in the United States, the EU-25 and in particular Brazil and China. World oilmeal consumption levels in 2004/05 remain, however, subject to uncertainty as new outbreaks of avian influenza in some countries may again curb demand for feed use. In China, strong and sustained economic growth is expected to drive demand for livestock and aquaculture products, and hence also for feeds such as oilmeals. The country’s role in global consumption of (and trade in) both oils and meals is particularly noteworthy: for 2004/05, its share in global demand is anticipated to rise further to 18 and 19 percent for oils and meals respectively.
The level of 2004/05 global opening stocks of both oils/fats and oilmeals/cakes (including the oil and meal contained in seeds stored) is well below the historical average. However, after several years of declining inventories, stocks are expected to recover during the current season. Oilmeal inventories especially are anticipated to experience a very sharp increase (notably in the United States) due to the substantial rise expected in global soybean production, combined with a possible excess of supplies over demand in particular in Europe and some Southeast Asian countries. A replenishment of global stocks is also foreseen for oils and fats, though at a more moderate rate. The comparison with anticipated consumption levels shows that the stock-to-utilization ratio could rise substantially for oilmeals. Although an improvement is foreseen also for oils/fats, that ratio is expected to recover less strongly, thus remaining below the levels recorded before the decline experienced over the past few years. Therefore, based on current stock and utilization forecasts, international prices for oils/fats should remain relatively firm during 2004/05. Prices for meals, by contrast, could come under downward pressure to due to the burden of high stocks combined with an only average increase in utilization.
After stagnating last season, international trade in oils/fats (including the oil contained in seeds traded) is anticipated to resume growing during 2004/05. The anticipated 5-6 percent expansion in trade is expected to be led by palm oil, followed by soybean and finally rapeseed oil. Trade in these three oils is expected to increase to compensate the anticipated contraction in sunflowerseed and groundnut oil trade, where shrinking production is expected to reduce export availabilities. The world’s seven leading exporters of edible/soap oils and fats, Malaysia, Indonesia, the United States, Brazil, Argentina Canada and the EU are anticipated to satisfy as much as 82 percent of global oil import requirements, thus further raising the level of concentration of export suppliers. Shipments by the United States, which dropped substantially in 2003/04, are forecast to recover. Asia is expected to remain the main import market, followed (at considerable) distance by the EU-25. With a tentative estimate of over 12 million tons for aggregate imports in 2004/05, China’s share in global imports is expected to rise further this season, approaching 20 percent. With the addition of new crushing capacity in the country, the proportion of oil imported in the form of to-be-crushed seeds is expected to increase. In India, where imports dropped considerably during 2003/04, foreign purchases are anticipated to again exceed 5 million metric tons as domestic production is expected to fall short of last year’s record level.
Growth in the global trade of oilmeals/cakes (including the meal contained in oilseeds traded) is expected to resume this season, possibly at an above average growth of up to 9 percent. This forecast depends strongly on the assumption that international prices for meals will fall significantly compared to last season. Soymeal accounts for most of the anticipated expansion and the product’s share in aggregate meal trade is expected to rise to 83 percent. Shipments by the United States are anticipated to recover from last season’s low level, while record breaking shipments are expected in Argentina and Brazil. China is estimated to account for most of the expansion in global imports. Import demand for oilmeals could however grow less than anticipated in the event of new outbreaks of avian influenza, notably in import dependant countries in Asia. If persisting, also high energy prices could eventually affect import demand for oilmeals by slowing down global economic growth and thus growth in per caput incomes. Overall, current forecasts seem to suggest that trade in processed products will continue to expand at the expense of trade in whole seeds.
1. Almost the entire volume of oilcrops harvested world-wide is crushed in order to obtain oils and fats for human nutrition or industrial purposes and cakes and meals used as feed ingredients. Therefore, rather than referring to oilseeds, the analysis of the market situation is mainly undertaken in terms of oils/fats and cakes/meals. Hence, production data for oils (cakes) derived from oilseeds refer to the oil (cake) equivalent of the current production of the relevant oilseeds, while the data on trade in and stocks of oils (cakes) refer to the sum of trade in and stocks of oils and cakes plus the oil (cake) equivalent of oilseed trade and stocks.
2. The market season referred to is October to September.
3. This section discusses expected developments in the production of oils and meals from all origins, which – in addition to products derived from the oil crops discussed in the previous section – include palm oil, marine oils and meals as well as animal fats.