†November†2007††
†Food Outlook
††Global Market Analysis

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MARKET SUMMARIES

CEREALS

WHEAT

COARSE GRAINS

RICE

OILSEEDS, OILS AND MEALS

SUGAR

MEAT AND MEAT PRODUCTS

MILK AND MILK PRODUCTS

FISH AND FISHERY PRODUCTS

FERTILIZERS

OCEAN FREIGHT RATES

Special features

Statistical appendix

Market indicators and food import bills

Announcement

OILSEEDS, OILS AND MEALS1/

PRICES2/

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Prices in the oilseed complex have surged further and are expected to remain firm

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During the second half of last season and up to the beginning of the new marketing year3/, prices in the oilseed complex have continued their pronounced rise in 2006/07. In September 2007, the FAO price index for meals/cakes stood 32 points (or 18†percent) above last yearís corresponding value, while for oilseeds and oils/fats the difference amounted to 70-80 points (or 60-70†percent). International prices have reached an all time record in the case of oilseeds and 23 and 34 year highs for oils and meals respectively. A key factor behind the extraordinary price rise is that oilcrop markets have come under the direct influence of developments in the related feed grain market. With maize and soybeans both facing rising demand in the feed as well as the energy market, and thus increasingly competing for land, the unprecedented surge in international maize prices has spilled over to the oilseeds and meal market and in particular the soybean complex. Furthermore, steadily growing biodiesel requirements led to increased demand for vegetable oils, notably soybean, rapeseed and palm oil. This trend, combined with a constant rise in the consumption of vegetable oil as food and weak growth of total oil production in 2006/07, has led to a gradual tightening in global supplies, thus explaining the recent surge in vegetable oil prices.

The present forecasts for global supply and demand in 2007/08 point towards continued firmness in international prices for oilseeds and oilseed products. Reduced growth in global oils/fats supplies and an unprecedented fall in meal supplies, because of a significant drop in oilseeds production, are expected to coincide with steady expansion in global demand for food, feed and energy use, thus calling for a steep reduction in inventories. World stocks and stock-to-use ratios of both oil and meals are anticipated to fall to critical levels. The concurrent continued tightness in world grain markets is expected to exert additional pressure on the oilseed complex. The futures market points in the same overall direction: in the first half of October 2007, the CBOT March contract for soybeans was traded about US$150 per tonne (or 67†percent) higher than in the corresponding period in 2006.

Considering the anticipated tightness of the market and the unusually low level of stocks, strong price volatility can be expected this season. During the first half of 2007/08, any unexpected development regarding crops that are currently being planted in the southern hemisphere, in particular poor weather conditions in South Americaís soybean growing areas, would have a strong effect on prices. Prices will also be susceptible to developments affecting palm oil output in Southeast Asia and to oil/meal purchases by Asian countries (notably China). As the season advances, the market will be increasingly influenced by the outlook for 2008/09 crops in the northern hemisphere. It still is very uncertain how farmers will respond to the new price pattern. Future demand for biofuels, and hence government policies in this field as well as fossil fuel prices will play an important role in this process.

OILSEEDS

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Unprecedented oilseed production decline expected in 2007/08

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After many years of steady expansion, in 2007/08, global oilseed production is forecast to decline. Global output is anticipated to fall 3†percent from last seasonís record level, mainly on account of soybeans. Production of soybean, the worldís leading oilcrop, is estimated to decline by 6†percent. Moreover, global sunflower seed output is expected to drop by 10†percent. By contrast, world production of rapeseed, groundnut, palmkernel and copra is likely to recover after last seasonís poor performance. However, growth in the latter crops will not be sufficient to offset the decline envisaged for soybean and sunflower.

The two main factors behind the anticipated drop in total output are first, increased competition from grains, notably in the United States but also in China and CIS countries, which has interrupted the steady expansion in world oilseed area. Second, unfavourable weather conditions have affected oilseed production in several key growing areas or countries, including the European Union, CIS, Australia, Canada, China, Turkey and the United States.

With regard to soybeans, the United States is responsible for most of the drop in global output. The countryís soybean area is reported to have fallen by over 15†percent, as farmers shifted land to maize, which offered attractive returns. As a result, soybean crop output is estimated at less than 71†million tonnes, or 17†percent below the average of the last three seasons. Also China experienced a marked reduction in soybean area, which, together with below average yields, led to a 12†percent fall in output. In response to these reductions, soybean growers in South America, where the 2007/08 crop year has only just started, are expected to raise soybean plantings to 43 million hectares, i.e. 6-7†percent above last seasonís level and a new record. Most of this expansion is expected to occur in Brazil. Under normal weather conditions, the continentís output should climb to 120 million tonnes. As to sunflowerseed, this seasonís drop in global production would mainly reflect poor harvests in the European Union, Ukraine and the Russian Federation, following a reduction in plantings and adverse weather conditions. Part of this drop is expected to be compensated by higher production in Argentina, where plantings should expand. World rapeseed production is forecast to rise moderately, thus recovering from last yearís weather-related decline. Stimulated by strong demand and unusually high prices, all the main producing countries (except China) have reported increases in area planted. However, adverse weather conditions have resulted in below average yield levels in most growing regions. Also world groundnut production is expected to expand, mainly due to Indiaís improved performance, although not sufficiently to recover fully from last seasonís drop.

Table 5. World production of major oilseeds

2005/06 2006/07 estim. 2007/08 fícast
million tonnes
Soybeans†221.4†236.8†222.5
Cottonseed†42.5†44.5†44.4
Rapeseed†48.9†47.0†48.6
Groundnuts (unshelled)†35.7†33.8†34.8
Sunflower†30.1†29.7†26.6
Palm kernels†9.7†10.0†10.7
Copra†5.3†4.9†5.2
Total 393.6 †406.7 †392.8
Source: FAO.
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.

 

OILS AND FATS4/

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Expansion in global oil and fat supplies expected to come to a halt

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FAOís current 2007/08 crop forecasts translate into an increase in global oil/fat production of less than 2†percent, similar to last season but markedly below the gains witnessed in the three preceding seasons. Palm, palmkernel, copra, rapeseed and groundnut oil are all expected to record sizeable increases, but the marked fall anticipated for soybean and sunflowerseed oil is expected to depress overall growth. Global soy oil production alone is forecast to fall by almost 6†percent to less than 37 million tonnes. As to tropical oils, after one year of reduced growth, palm oil is expected to resume expansion, with overall output climbing to a record 42 million tonnes. Palm oil should thus play a key role in filling (at least in part) the gap created by this seasonís drop in seed oil production. Output in Malaysia and Indonesia is forecast to rise by 9†and 12†percent respectively. In the case of Malaysia, growth is expected to be mostly sustained by yield improvements, whereas in Indonesia it is the expansion in mature area that should drive the expansion. As to rapeseed, copra and groundnut oil, global production is forecast to only partly recover from last seasonís decline. Global supplies of oils/fats (i.e. 2006/07 ending stocks plus 2007/08 production) are anticipated to increase only marginally, much in contrast to the 5†percent average rise recorded in recent years, partly because of the drop in inventories that occurred during the season that just ended.

Table 6. World oilseeds and products markets at a glance

2005/06 2006/07 estim. 2007/08 fícast
million tonnes
Total oilseeds
Production404417403
Oils and fats 1
Production149151154
Supply 2168172174
Utilization 3146152157
Trade 4727679
Stock-to-utilization ratio (%)141311
Oilmeals and cakes 5
Production101106102
Supply 2113121119
Utilization 398102108
Trade 4555962
Stock-to-utilization ratio (%)151711
Source: FAO
Note: Refer to footnote 4 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 and other meals from animal origin.

 

Total oil/fat consumption growth to slow down but biofuel use has potential to rise

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Due to the anticipated stagnation in supplies, growth in global oil/fat consumption is likely to slow down in 2007/08. World utilization is forecast to expand by 3†percent, as opposed to about 5†percent in recent years. In particular, utilization growth is expected to weaken in the two key consuming areas, that is, Asia and the European Union. Only in the United States, consumption is estimated to grow at an about average rate. Palm oil, the supplies of which are expected to be more ample than those of seed oils, should account for about half of this seasonís rise in global consumption. Soy oil should cover most of the remainder, as soybean crushings are expected to expand, driven by strong meal demand.

Utilization of vegetable oils as feedstock for biodiesel, as well as for generating electricity and for heating purposes, is expected to grow further in 2007/08. However, in the European Union, rising vegetable oil prices combined with changes in national biofuel policies have dampened demand growth. The rapid expansion in the European Unionís biodiesel industry is unlikely to continue as at present most existing plants are operating well below capacity. Utilization of rapeseed oil by biodiesel producers, which currently is estimated to absorb about 60†percent of the European Unionís rapeseed oil output, is forecast to remain about unchanged in 2007/08. In the United States, demand from the biodiesel industry should be the main driver behind the countryís projected 9†percent rise in soy oil consumption, and, as a result, the biofuel sector is estimated to absorb about 20†percent of domestic soy oil production. Further growth in biodiesel industries is expected in several other countries, notably Argentina, Brazil, Indonesia and Malaysia. Overall, despite high vegetable oil prices, continued growth in utilization appears likely. However, further changes in national biofuel policies (including trade measures), on the one hand, and developments in mineral oil prices, on the other, may alter such prospects.

A sizeable contraction in oil/fat stocks anticipated

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In 2007/08, global oil/fat production is forecast to remain short of consumption for the second consecutive year. Also global supplies are expected to tighten vis-ŗ-vis demand after being ample for three years, leading to a further drawdown of inventories. After last seasonís modest decrease, global stocks are estimated to drop by about 12†percent in 2007/08. This forecast mainly reflects the situation in the United States, where total inventories (i.e. oil inventories plus the oil contained in stored seeds) are expected to be cut by about 2.4†million tonnes, or almost 50†percent, to compensate for this seasonís reduced soybean harvest. Furthermore, stock reductions are expected in Canada (rapeseed/oil) as well as countries in Eastern Europe (sunflowerseed/oil) and South America (soybeans/oil). By contrast, South Asian palm oil inventories are anticipated to recover, climbing back to 4 million tonnes. Overall, these forecasts point towards a further drop in the global stocks-to-utilization ratio, by almost two†percentage points, which explains the current and possibly continued firmness in international prices.

Expansion in oil/fat trade expected to continue

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In 2007/08, the total volume of oil/fat shipments is anticipated to rise by 4†percent, approaching 80†million tonnes (in terms of oils/fats plus the oil contained in oilseeds traded). Most of the anticipated expansion should be on account of palm oil and soy oil. Trade in vegetable oils that are destined for biofuel production is likely to grow. Developing countries in Asia, notably China, are expected to account for most of the anticipated rise in total imports. Indeed, a sizeable fall in Chinaís domestic crop output should widen the countryís deficit in oil/fat supplies, thus raising the import requirements by 14†percent, or more than two million tonnes - notwithstanding weaker growth in domestic consumption. As a result, China is set to become the worldís leading buyer, accounting for about one fourth of global purchases. A further expansion in imports is also expected in the European Union, due to poor crops and steadily growing demand. By contrast, expectation of a record harvest should lead to a sizeable reduction in purchases by India, thus reducing the countryís dependence on imports in 2007/08.

With regard to world exports, the marketís reliance on South American countries as providers of soybeans and soy oil is likely to intensify because, in the United States, the release of soybeans from stocks for crushing and exportation will not be sufficient to prevent a sizeable fall in foreign sales. In Argentina, where crushing capacities have expanded further, additional shipments will mainly concern soy oil, whereas Brazil is expected to augment primarily the sale of beans. Regarding palm oil, another rise in global exports is predicted, on account of rising output in Indonesia and Malaysia. Shipments from Indonesia should again increase the most, allowing the country to raise its market share. Overall, the participations of soy and palm oil in total oil/fat trade are both anticipated to increase, reflecting larger supplies and more competitive prices compared with other products.

MEALS AND CAKES5/

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Marked drop in meal production dragging down total meal and cake supplies

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Current 2007/08 crop forecasts translate into an unprecedented 4†percent drop in global meal/cake output, mainly the result of the pronounced reduction in United States soybean production. Year-on-year, global soybean meal output is expected to fall by 10 million tonnes. Also sunflowerseed meal output is estimated to fall, whereas moderate gains are predicted for all other meals/cakes. The prospective fall in total meal output will be concentrated in China and the United States, offset only in part by higher production in South American countries and India. Global supplies of meal/cake (i.e. 2007/08 production plus 2006/07 ending stocks) are also expected to drop, an event that occurred only twice in the last twenty years.

Consumption of meals and cakes to expand further, in spite of record high prices

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The comparison of globally available meal supplies with anticipated world demand points towards a pronounced tightening of the markets in 2007/08. Year-on-year, total consumption (expressed in protein equivalent) is estimated to rise by 5†percent or 5 million tonnes, whereas global supplies are seen declining by 2 million tonnes. Soybean meal is expected to account for most of the prospective rise in consumption. Total meals and cakes consumption is anticipated to keep expanding in spite of high prices. One explanation is the rising consumption of livestock products in Asia, mainly triggered by further improvements in household incomes. Livestock production is anticipated to increase in particular in China, also because the sector has suffered some setbacks due to disease problems, and the resulting rise in domestic prices is expected to stimulate production. However, the projected increase in global meals and cake demand would also stem from the exceptional shortage in feed grains worldwide. Prices of feed grains have surged in response to a global supply deficit, thus inducing the compound feed industry to replace feed grains with other products, notably oilmeals. This situation applies in particular to the European Union and the United States, as well as parts of Asia.

Sharp drop in meal and cake stocks unavoidable

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Due to the sizeable deficit expected in meal supplies, a major reduction in stocks (referring to both, meals and the meal contained in oilseeds stored) is expected in 2007/08. Global inventories are estimated to drop by roughly one third during the current season, thus departing from the comfortable levels of the last three seasons. The unprecedented drop in stocks concerns primarily soybeans and their meal. Stock releases are expected to occur primarily in the United States. Modest reductions are expected also in Argentina, Brazil, China and the European Union. The comparison of stock and consumption estimates confirms the likelihood of a tightening of world meal/cake markets: the stocks-to-use ratio is projected to drop sharply (from 17†to 11†percent), thus cancelling out the gains recorded over the three previous seasons and confirming the expectation of continued firmness in international meal prices.

Expansion in meal trade to continue

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Global trade in meals/cakes (including the meal equivalent of oilseeds traded) is forecast to reach a record 143 million tonnes in 2007/08, implying a year-on-year increase of 6†percent. As in past years, almost the entire rise in global trade is expected to correspond to soybean meal. Most of the anticipated rise in global imports is expected to originate in Asia, and in particular in China, where total purchases are estimated to grow by over 4 million tonnes, or 16†percent, compared with last season. Chinaís poor oilcrop harvest should lead to a decline in meal output from domestically grown crops, which, combined with steadily rising feedstuff demand, is expected to push the countryís imports to a record 32 million tonnes. China would thus account for roughly one fourth of global imports. Other important Asian buyers are also expected to increase their meal purchases, notably the Republic of Korea, Indonesia, the Philippines and Thailand. At 45 million tonnes, the European Union bloc is projected to remain the worldís main buyer of meals. The implied year-on-year increase of 3†percent is mainly attributed to the recent surge in feed grain prices, which is encouraging the European Unionís feed compounders to use more oilmeals.

This seasonís export pattern is expected to be influenced by the drop in soybean output in the United States. Falling domestic meal output together with rising internal demand (due to high feed grain prices) are expected to reduce the United States export availabilities by close to 2 million tonnes (or 5†percent). Consequently, world market dependence on South American supplies is anticipated to deepen. Assuming current production forecasts materialize, shipments from South America may expand by an extraordinary 14†percent, or more than 10 million tonnes, most of which would be provided, in roughly equal amounts, by Argentina and Brazil. The joint market share of the two countries would rise to 53†percent, while that of the United States would fall to 21†percent. Within Asia, the importance of India as a local supplier of meals is expected to grow further. Large domestic crops should allow the country to raise its meal exports to a record 5.7 million tonnes, especially as importers in the region are likely to prefer nearby suppliers, given soaring freight rates.


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, and do not reflect the outcome of actual oilseed crushing nor take into account changes in oilseed stocks. Furthermore, 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.† For details on prices and corresponding indices, see appendix Table A-24.

3.† For the oilseed complex, the marketing season runs from October to September.

4.† This section refers to oils from all origins, which, in addition to products derived from the oil crops discussed under the section on oilseeds, include palm oil, marine oils as well as animal fats.

5.† This section refers to meals from all origins, which, in addition to products derived from the oil crops discussed under the section on oilseeds, include fish meal as well as meals of animal origin.

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GIEWS ††global information and early warning system on food and agriculture