|food outlook||No.4, December 2005|
|global information and early warning system on food and agriculture(GIEWS)|
OILSEEDS, OILS AND OILMEALS1/
The FAO price index for oilseeds strengthened in the middle of the 2004/05 season2/, but subsequently weakened, and by the end of the season was close to the level in October 2004. The recent price weakening largely reflected evidence of record oilseed carryover stocks as the season drew to a close. The price development in the first part of the 2005/06 season will depend mainly on two factors: the demand development in China and the United States and the crop prospects in South America. Based on a currently favourable outlook for the South American crop, prices are expected to remain flat during the first part of the season. However, as the season progresses, price volatility normally increase as markets react to weather conditions for the development of the new crops in southern hemisphere countries.
Sustained imports by China, the prospect of a slow-down in meal production and shipping delays from damaged US ports supported prices for oilmeals and cakes in the second half of last season. However, in the first months of the upcoming marketing year meal prices are likely to come under downward pressure as the market reacts to the prospect of ample global soybean supplies. It has become questionable whether demand in Europe, Asia and North America will be high enough to absorb the prospective production at current prices during the 2005/06 season. Part of the anticipated weakness in meal prices is linked to concerns about the avian flu, which is threatening to spread further.
Prices for oils and fats slipped under the pressure of record soybean and palm oil production in 2004/05. Utilization of vegetable oils fell short of supply causing global stocks to rise. During the upcoming season, the total oils stock-to-utilization ratio is expected to fall in 2005/06 because of lower production growth and firm demand. As a result, prices can be expected to strengthen. With regard to the trend worldwide to raise consumption of vegetable oils in biodiesel, during 2005/06, the importance of biofuel demand on the global vegetable oil market could strengthen further and have a significant impact on prices.
Global oilseed production is currently forecast to increase by about 2 percent in the 2005/06 crop year, to reach 395 million tonnes. This represents a considerable slowdown in production growth after the surge in the previous season. The main reason behind this is the relatively small growth anticipated in soybean production, for which current forecasts point toward an increase of only 3 percent. In the United States, the world’s main soybean producer, production is reported to have fallen by about 3 percent due to a decline in area harvested. In South America, where the 2005/06 oilcrops are just being planted, aggregate soybean output is tentatively forecast to grow by about 11 percent. The latter estimate is based on reports that the area planted is expanding in Argentina and shrinking in Brazil as well as on the expectation that yields will return to average levels as weather conditions in Brazil are expected to be more favourable than last year and farmers are prepared to fight against the threat of Asian rust. However, at this point, South America’s final outturn remains uncertain. Farmers’ planting decisions are still under the influence of recent and prospective price developments (also linked to the appreciation of the Real) as well as uncertainties regarding the likely increase in production costs for soybeans. Also global groundnut and sunflowerseed output is projected to increase, reaching near record levels. Regarding sunflowerseed, both the Russian Federation and Ukraine are expecting excellent crops. Global production of both cottonseed and rapeseed is expected to fall. An expansion in the Canadian canola production for the third consecutive year would not be sufficient to offset a 13 percent drop in Chinese production due to poor yields.
Table 8. World production of oilseeds (million tonnes)
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 oils/fats production is anticipated to grow between 2 and 3 percent during 2005/06. Accounting for most of the anticipated increase in oil production will be palm oil, despite a below average growth of 5 percent (caused mainly by the yield reduction anticipated for Malaysia). Global supplies of oils and fats (i.e. 2004/05 ending stocks plus 2005/06 production) are forecast to grow by almost 4 percent compared to last season.
Regarding meals/cakes, after last season’s surge, global output is forecast to increase by less than 3 percent (compared to 14 percent during 2004/05), mainly reflecting the expected flat development in soybean production. The latter, together with the anticipated rise in sunflower meal output, will offset the expected fall in rape and cottonseed meal. With regard to global supplies, the increase over last season is estimated at 6 percent due to the recovery of carryover stocks from last year’s exceptionally low levels.
During 2005/06, global consumption of oils/fats is forecast to expand further, rising at an about average rate of 3-4 percent. The main motor behind this growth continues to be sustained income growth 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 account for the bulk of the increase while consumption of other oils is likely to grow only slightly. 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, about 45 percent of rapeseed oil production could be used for non-food applications this season.
Global consumption of meals/cakes is anticipated to rise by 5 percent in 2005/06, based, inter alia, on the assumption that demand will be stimulated by a fall in prices. Such a development is anticipated because, during 2005/06, in order to satisfy the consistently growing demand for oils/fats and in view of the limited supplies of oil-rich crops (notably rapeseeds), 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, China and the EU. World oilmeal consumption levels in 2005/06 remain, however, subject to uncertainty as new outbreaks of avian influenza in some countries may 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 share in global consumption of (and trade in) both oils and meals is expected to expand further.
Table 9. Oilseeds and products: Global supplies, trade and utilization (million tonnes)
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.
Note: Refer to footnote 1 in the text for further explanations regarding definitions and coverage.
The level of 2005/06 global opening stocks of both oils/fats and oilmeals/cakes (including the oil and meal contained in seeds stored) are well above the historical average. After several years of declining inventories, stocks recovered during the 2004/05 season. Oilmeal inventories especially experienced a very sharp increase (notably in the United States) due to the substantial rise in global soybean production, combined with an estimated excess of supplies over demand in particular in Europe and some Southeast Asian countries. A replenishment of global stocks also happened for oils and fats, though at a more moderate rate. During the upcoming season the growth of both production and consumption is expected to slow down. The forecasted growth in consumption outpaces the production expansion resulting in a modest release of meal and oil/fats stocks. The comparison with anticipated consumption levels shows that the stock-to-utilization ratio for oilmeals could fall, remaining, however, above the average recorded in recent years. Also for oils/fats, that ratio is expected to fall, reaching a below average level. Therefore, based on current stock and utilization forecasts, international prices for oils/fats should remain relatively firm during 2005/06. Prices for meals, by contrast, could come under downward pressure due to the burden of exceptionally high beginning stocks combined with a possible slow down in utilization.
International trade in oils/fats (including the oil contained in seeds traded) is anticipated to continue growing during 2005/06. The anticipated 5 percent expansion in trade is expected to be led by palm oil, followed by soybean and finally rapeseed oil. 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. Shipments by the United States, which recovered after the drop in 2003/04, are forecast to expand another 2 percent. Palm oil exports are estimated to grow only 5 percent, down from an average growth of 13 percent in previous years. Asia is expected to remain the main import market, followed (at considerable distance) by the EU. With a tentative estimate of over 13 million tons for aggregate imports in 2005/06, China’s share in global imports is expected to climb to 19 percent. In India, the deficit between domestic vegetable oil production and consumption is expected to narrow this season, possibly leading to a reduction of imports by about 3 percent compared to last season.
Growth in the global trade of meals/cakes (including the meal contained in oilseeds traded) is expected to continue this season, at an about average rate of 6 percent. This forecast depends on the assumption that international prices for meals will not strengthen compared to last season. Soymeal accounts for most of the anticipated expansion. Shipments by the United States are expected to remain close to last year’s record levels, while record breaking shipments are expected in Argentina and Brazil. Asian countries are estimated to account for most of the expansion in global imports. Global 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.
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.