|No.1 June 2006|
|Global Market Analysis|
OILSEEDS, OILS AND OILMEALS1/
The main factor influencing international oilseed prices during the first half of the 2005/06 season (October to September) was the favourable outlook for the South American crop. The prospect of ample world supplies of soybeans (relative to expected demand) in particular and oilseeds in general caused oilseed prices to drop below the level recorded during the corresponding period of last season. As to the second half of the current season, the anticipated accumulation of oilseed stocks reduces the prospects of a strengthening in prices. Considering that plantings of 2006/07 crops are about to start in the northern hemisphere, price volatility can be expected to increase over the coming months as markets react to weather conditions affecting the development of the new crops.
With regard to oils and fats, at the beginning of the 2005/06 season, prices slipped under the pressure of record soybean and palm oil production in 2004/05. Subsequently, prices tended to recover when a surge in global utilization (for both food as well as non-food purposes) coincided with a marked slowdown in palm oil production growth and a shortage of crushing capacities for seed crops, resulting in a temporary drawdown of global oil/fat inventories. As oil output is gradually catching up with demand, prices are expected to lose strength and, for the coming months, overall market fundamentals are pointing towards stable or slightly weakening international prices. Due to ample seed supplies relative to consumption, global end of season stocks are expected to reach record levels, causing a rise in this season’s stocks-to-utilization ratio. However, initial forecasts for the 2006/07 season suggest less ample seed and oil supplies and thus a sizeable reduction in inventories. Such an outlook could lend new support to the market and reverse the anticipated weakening of prices.
In spite of the surge in global meal supplies in 2004/05 and the further rise in output forecasted for 2005/06, international prices for meals and cakes have followed a moderate but consistent upward trend since the beginning of last season. Apparently this season’s below average growth in soybean and soybean meal output, together with the prospect of a marked shortfall in fishmeal, have raised fears about a possible deficit in supplies vis-à-vis demand. As a result, during the first half of the current season, prices of oilmeals have been the firmest element of the oilseed complex. However, the acceleration of production growth, together with a steep build-up of stocks (in particular soybeans and soybean meal), which are expected to reach record levels by the end of 2005/06, have started to affect the market. During February-April 2006, prices of soymeal fell by more than 10 percent compared with the corresponding period last year. Prices of other meals have moved in the same direction (with the exception of fishmeal) and, during the coming months, the aggregate price index for meals is anticipated to fall. However, this trend could be reversed later this season if the current 2006/07 forecasts of tightening oilseed and meal supplies materialize.
At 397 million tonnes, global oilseed production in 2005/06 is currently forecast to increase by about 2 percent, a considerable slowdown in production growth. Behind this forecast is the relatively modest growth of only 1 percent anticipated in soybean production. In the United States, the world’s main soybean producer, output has even fallen slightly due to a reduction in area harvested compared with the previous season.
In South America, where the 2005/06 oilcrop is still being harvested, aggregate output is estimated to grow slightly to a new record of almost 109 million tonnes. Reportedly, the soybean area harvested has expanded in Argentina but fallen in Brazil, where farmers have faced considerable increases in production costs. However, yields in Brazil seem to have returned to average levels as weather conditions have been more favourable than during the last two seasons and because farmers were better prepared to fight Asian rust. Also global production of most other oilcrops is estimated to increase, reaching near record levels, notably with regard to sunflower seed but also palm kernels and rapeseed. Both the Russian Federation and Ukraine have harvested record sunflower seed crops reflecting a combination of larger area planted and record yields. The rise in global rapeseed output is mainly on account of record yield and area levels in Canada. By contrast, world production of cottonseed is estimated to drop by about 5 percent, mainly reflecting a fall in production in China (mainland).
Table 6. 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 crops, which are produced throughout the year, calendar year production for the second year shown is used.
Based on current crop estimates, global oil/fat production is anticipated to grow by about 3 percent during 2005/06. Most of the anticipated increase in world oil production will be accounted for by sunflower seed oil and, more importantly, palm oil, although the latter is forecast to increase at a below average rate of 5 percent, due to yield reductions anticipated for Malaysia. Interestingly, the slowdown in palm oil production has led other countries to shift resources towards the production of high oil-yielding seeds and to invest in the expansion of crushing capacities.
Global supplies of oils and fats (i.e. 2004/05 ending stocks plus 2005/06 production) are forecast to increase by about 4 percent compared with last season.
Regarding meals/cakes, global output is forecast to increase by only 1 or 2 percent this season (compared with 14 percent in 2004/05), mainly reflecting the relatively weak increase in world soybean production. The latter, together with the anticipated rise in sunflower and rapeseed meal output, should offset the expected fall in cottonseed meal.
With regard to supplies, the 2005/06 increase over last season is estimated at 4 percent due to the recovery of carryover stocks from last season’s exceptionally low level.
Table 7. World oilseeds and products markets at a glance
Note: Refer to footnote 1 in the text for further explanations regarding definitions and coverage
1Includes 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
International trade in oils/fats (including the oil contained in seeds traded) is anticipated to continue increasing during 2005/06. The anticipated 4 percent expansion is expected to be led by palm oil followed by sunflower seed and rapeseed oil. Soybean oil shipments are estimated to remain unchanged, thus accounting for a lower share of total trade than usual. The world’s seven leading exporters of oils and fats, Malaysia, Indonesia, the United States, Brazil, Argentina, Canada and the EU are anticipated to supply as much as 81 percent of global trade. An anticipated fall in shipments by the United States is expected to be offset by rising exports from South America. Palm oil shipments are estimated to grow by only 4 percent, as opposed to an average growth of 13 percent in previous years. An expansion in sunflower seed oil trade is anticipated, driven by above average production and export availabilities in the Russian Federation and Ukraine. Canada is likely to account for much of the rise in global exports of rapeseed oil.
Countries in Asia are expected to remain the main import markets for oils/fats, followed (at considerable distance) by the EU. With a tentative estimate of 13 million tonnes for aggregate imports in 2005/06, China’s share in global imports is expected to climb to 19 percent. Based on current estimates, as much as half of the country’s oil/fat consumption would originate from imported material, compared with less than one third five years ago. This year’s removal of tariff rate quotas for vegetable oils could further raise the competitiveness of imported vis-à-vis domestically produced oils. In India, the deficit between vegetable oil production from domestic sources and total consumption is expected to narrow this season, possibly leading to an import reduction of at least 10 percent compared with last season. Moreover, the imminent introduction of government regulations governing the importation of genetically modified material may affect the country’s import pattern: in particular, a dampening effect on soybean imports cannot be excluded. In the EU, the anticipated rise in demand for food and non-food purposes is anticipated to give rise to a considerable surge in imports to almost 13 million tonnes.
Global trade in meals/cakes (including the meal contained in oilseeds traded) is expected to expand by 3-4 percent in 2005/06 with soymeal accounting for most of the anticipated expansion. This could represent a marked slowdown from the previous marketing year, which can be attributed to the continued firmness of international meal prices and reduced import demand from countries affected by animal diseases. Shipments by the United States are anticipated to fall short of last season’s high level, while record-breaking shipments are expected from Argentina and Brazil, partly at the expense of domestic consumption and stock holding. Asian countries are again estimated to account for most of the expansion in global imports. China alone is seen to absorb 20 percent of global imports, with over 50 percent of meal produced in China originating from imported material. World import demand for oilmeals could, however, grow less than anticipated in the event of new outbreaks of avian influenza (AI), notably in meal import-dependant countries in Asia.
During 2005/06, global consumption of oils/fats is estimated to have risen at an average of about 3 percent, sustained by income and population growth in China and other countries in Southeast Asia. China’s share in global consumption of oils/fats is anticipated to exceed 18 percent. Utilization could also expand in Latin America (Brazil and Mexico) and in some Eastern European countries, while in Africa and South Asia growth should remain relatively low or, in some countries, even negative. Despite a slower expansion in output, palm oil is once again anticipated to account for the bulk of this season’s increase in oil utilization, followed by rapeseed and sunflower seed oil. Demand utilization for non-food purposes, notably for the production of biodiesel but also for electricity generation, is estimated to account for an increasing share of total consumption. Production of oilcrop-based biodiesel is expanding worldwide in response to soaring petrol prices and the decision of several countries to implement policies that stimulate production and consumption of biofuels. From this year, considerable additional capacities to produce biofuel are expected to become on stream. According to a recent private sector estimate, the EU’s production capacity for biodiesel is approaching 6 million tonnes per year, which seems to suggest that, in future, the bulk of the EU’s rapeseed oil output could be used for that purpose. Conversely, EU imports of other oils, such as sunflower seed oil for food uses, can be expected to rise already in the current season.
Global consumption of meals/cakes is forecast to rise by 2-3 percent in 2005/06, down from 9 percent last season. This deceleration is based, inter alia, on the relative firmness of prices observed thus far as well as the negative impact of animal diseases on livestock production. Consumption growth is again expected to be concentrated in China and other Southeast Asian countries. In China, strong and sustained economic growth continues to drive demand for livestock and aquaculture products and, hence, demand for feeds such as oilmeals. The country’s share in global meal consumption is anticipated to exceed 20 percent this season. Utilization in the EU is expected to rise due to the availability of attractively priced meal (coming from domestically produced rapeseed as opposed to imported soybean) stemming from the oil demand-driven increase in crushings. In the United States, meal utilization by the feed industry is anticipated to remain unchanged. World oilmeal consumption in 2005/06 remains, however, subject to uncertainty as further AI outbreaks in some countries may curb demand for feed use.
The level of 2005/06 global opening stocks of both oils/fats and meals (including the oil and meal contained in seeds stored) was well above the historic average. Oilmeal inventories especially experienced a particularly sharp increase during 2004/05 following the substantial rise in world soybean production, combined with an excess of total supplies over demand, in particular in China and the United States. A replenishment of global stocks also occurred for oils and fats, though at a more moderate rate. For the current 2005/06 marketing year, forecasted global supplies of both meals and oils/fats markedly exceed demand, which should lead to another substantial rise in global meal and oil/fat inventories by the end of the season. The comparison with anticipated consumption levels indicates that the stock-to-utilization ratio for oilmeals could increase further, exceeding the average of recent years. In the case of soybean meal, inventories could cover as much as 18 percent of annual usage. In the United States, that ratio is estimated to surge to 35 percent. Also for oils/fats, the ratio is expected to increase, suggesting that prices should remain under downward pressure during 2005/06. Should the anticipated surge in inventories and the slowdown in utilization materialize, prices for meals should also weaken, thus reversing the upward trend observed during the first half of the season.
Spring plantings of the 2006/07 oilcrops are now underway in many northern hemisphere countries and prospective crop developments will begin to influence the market during the remainder of the current 2005/06 season. The United States has reported record area planting intentions for soybeans. Depending on the level of yields, crop output should be close to, or possibly above, last year’s level and could even exceed the historic record set in 2003/04. However, prospects are less favourable in South America, where aggregate plantings may decline markedly. This concerns mainly Brazil, where the profitability of growing soybean may fall further because of persistent problems with Asian rust, rising input costs and the continued strength of the real.
It appears that the next sunflower seed crop in northern hemisphere countries will fall short of this season’s exceptional outturn. A reduction in plantings is anticipated in Eastern Europe, the CIS region and the United States, whereas production is likely to recover in the EU. Overall, a reduction in the output and export availabilities of sunflower seed and its products appears likely in 2006/07. Also global rapeseed production is expected to fall short of this season’s record level. While production is expected to rise further in the EU, Canada’s production is likely to fall back to average levels, meaning a reduction of at least 2 million tonnes. The area planted to oilcrops in China and India remains uncertain, but in India it may drop in favour of cereal crops, based on recent reports of appreciating grain prices.
The prospective sluggish growth in aggregate oilcrop plantings appears to be in line with the price weakness observed in international oilseed markets during recent months. Combined with normal weather conditions, the above-mentioned trends in plantings should result, at best, in a moderate output increase in 2006/07. In contrast, it is probable that global demand for oils and meals will continue increasing by 3 percent (or more), which would make a marked drawdown in stocks during 2006/07 inevitable. Such a prospect could attenuate the downward pressure on prices anticipated for the remainder of this season.
1. Almost the entire volume of oilcrops harvested worldwide 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.
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.
|GIEWS||global information and early warning system on food and agriculture|