|No. 3||Rome, June 2003|
Oilseeds, Oils and Oilmeals1/
In the recent months, some prices in the oilseeds complex have temporarily come under downward pressure. As harvesting progresses, it has become clear that the supply and demand situation during the 2002/03 season (October/September) might be somewhat less tight than originally anticipated. Nonetheless, all of the prices are still markedly higher than during the same period in 2002 and, in general, prices are anticipated to continue strengthening during the remainder of the season in the face of continued demand growth.
Oils and fats prices, as represented by FAO’s price index for oils/fats, reached a seasonal high in December 2002 and have been falling somewhat since that time due to several factors. One of the factors is the seasonal harvesting pressure from South America where the big producing countries in the region have been gathering another record crop. Secondly, there have been upward revisions of the oilseeds production estimates in some of the big producing countries in the northern hemisphere. Thirdly, palm oil output by Malaysia has been unexpectedly higher in recent months thereby exerting additional downward pressure on prices. However, the recent decline in prices is expected to be short-lived considering that, for the season as a whole, the growth in global supplies is expected to fall short of the anticipated rise in global demand.
For oilcakes and meals, the seasonal harvesting pressure of the record South American crop on prices (as represented by FAO’s price index for oilcakes/meals) was less pronounced vis-à-vis the oils sector largely due to the prevailing market fundamentals. In particular, the demand from Asia continues to grow strongly and the EU’s imports could be higher than originally anticipated. Furthermore, logistical bottlenecks of the record South American crop from points of production to processing facilities and, finally, to ports have been supportive of prices.
As harvesting of the South American soybean crop comes to an end, it is becoming increasingly clear that world production of the seven major oilseeds during the 2002/03 season could register a slight increase vis-à-vis the previous season despite weather-related problems encountered in some parts of the world. Current indications are that output gains, especially soybean, in Argentina and Brazil, will compensate for the lower crops harvested in some of the main producing countries in the northern hemisphere.
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.
In the United States, the world’s largest soybean producer, the soybean output estimate for 2002/03 is about 5 percent below the previous season’s level. Production shortfalls are also estimated for some of the other big producers in the north hemisphere such as Canada, China (Mainland) and India where unfavourable weather conditions led to a reduction in output.
International Prices of Oilseed-Based Products
Source: FAO, Oil World
a/ Soybean, US, c.i.f. Rotterdam. b/ Soybean oil, Dutch, fob ex-mill. c/ Palm oil, crude, c.i.f. N.W. Europe. d/ Soy pellets, 44/45%, Argentina, c.i.f. Rotterdam.
In South America, market signals at the time of planting led to an increase in area allocated to oilseeds, especially soybeans, at the expense of competing crops. In Argentina, current yield forecasts suggest that soybean output could increase by over 16 percent to establish a new record high. In Brazil, soybean production is currently expected to expand by at least 17 percent from the previous season, registering yet another record.
In Australia, drought conditions during the growing period affected crop development and rapeseed production is expected to be less than one half of the previous season’s volume.
The outlook for the 2002/03 global production of oils and fats has improved in recent months, compared to the beginning of the season, led by somewhat better prospects for soybean and palm oils.
Global soy oil production is forecast to increase by over 5 percent from the previous season despite an expected decline in the United States – the largest producer. The projected increase hinges on the bright South American outlook. Regarding palm oil, the high production growth rates of the 1990s have slowed down considerably last season and modest growth is expected also in the current season. For sunflower oil, the declining output trend of the previous three seasons is expected to be reversed this season due to the projected output recovery in Argentina, the Russian Federation and Ukraine. With regard to rapeseed oil, the decline projected for this season would make it three consecutive years of falling output. Groundnut oil is also forecast to undergo a big decline due to weather-related damages to crops in the United States, Argentina, Senegal and India.
However, overall supplies of oils/fats (production plus opening stocks) during the current season are projected to be tight owing to the much reduced rate of output growth and a reduction in the carry-in stocks.
Also the global oilcakes and meals production, expressed in protein equivalent, is forecast to increase albeit at a much reduced rate vis-à-vis recent seasons. As has been the case in recent seasons, gains in soymeal output will be fundamental in offsetting the expected production fall in some of the other major meals such as rapeseed. Reversing the declining trend of the last three seasons, sunflower meal output is forecast to rise. As far as fishmeal is concerned, fishing restrictions in Peru, the largest producer in the world, are bound to result in reduced output for that country and also globally. In general, overall global supplies of oilcakes and meals for the current season are expected to stagnate at the previous season’s level, despite a projected increase in output, due to the much reduced carry-in stocks vis-à-vis the previous season.
World utilization of oils and fats in the current season is forecast to expand modestly from last season. The most important contributing factor continues to be a slowdown in economic growth in a number of countries. In addition, given the projected decline in the overall supplies and assuming a trend increase in demand, prices are expected to rise to levels at which consumption growth in some countries will have to be limited - a scenario which applies in particular to developing nations where demand is more elastic to prices.
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 soybean, rapeseed, sunflowerseed, groundnut (unshelled), cottonseed, copra and palm kernel. The split years bring together Northern Hemisphere annual crops harvested in the latter part of the first year shown and 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. 2/ Includes oils and fats of vegetable and animal origin. 3/ Production plus opening stocks. 4/ Residual of the balance. 5/ All meal figures are expressed in protein equivalent. Meals include all meals and cakes derived from oilcrops as well as fish meal.
With regard to individual oils/fats, sunflower oil is expected to register the biggest expansion, in percentage terms, owing to its increased availability. This would be a trend reversal compared to the previous seasons. By contrast, rape oil use is forecast to decline for the same reason. Soy oil and palm oil consumption are expected to grow but at a reduced rate vis-à-vis recent seasons.
Global consumption of oilcakes and meals (expressed in protein equivalent) is expected to increase but at a much reduced rate compared to recent seasons. This is attributable to a number of factors including a) the end of the substitution process stemming from the EU’s ban on the use of meat and bone meal in compound feed; b) increased ‘feed wheat’ supplies and use in the EU resulting from bad weather that led to quality deterioration; and c) a slowdown in livestock production growth, especially in the EU and United States, due to reduced profitability partly attributable to the imposition of import quotas on meat by the Russian Federation. In addition, a slowdown in consumption growth is also expected in central European countries where oilmeal usage has been on a steady increase in recent years. The projected growth reduction is largely due to the fact that their livestock sectors are heavily dependent on export markets, particularly to the EU, and with a sluggish economic growth in many parts of the world, demand for their products is dwindling.
By contrast, oilmeal intake continues to grow in a number of Asian countries, particularly in South East Asia. The region continues to post impressive economic growth rates and the resultant increase in household incomes induces increased demand for livestock and related products and, therefore, protein meals. Meal consumption in Brazil is also expanding appreciably.
Overall, the increased reliance on soymeal that started a few seasons ago is expected to continue during the current season. This is due to the fact that in recent seasons the supply of rape and sunflower meals, two of the major meals, has been limited.
Despite a record output projected for soybean and palm oils during the current season, the end-of-season stocks of oils and fats (including the oil contained in seeds stored) are forecast to decline for the third consecutive season. The anticipated increase in utilization, though modest compared to recent seasons, is expected to surpass that of global supplies. Apart from soybean oil, all the other oils are forecast to register stock declines at the end of the season and this is expected to exert upward pressure on prices of oils and fats.
As to oilcakes and meals, the anticipated rise in soybean meal supplies will not be sufficient satisfy the projected demand expansion and to make up for the projected reduced availability of the other major meals. Hence, global utilization is forecast to surpass production thus necessitating a drawdown of stocks. Like the oils sector, the accompanying fall in the overall stocks-to-use ratio is expected to provide upward support to prices during the remainder of the season.
World trade of oils and fats (including the oil contained in oilseeds traded) is forecast to expand 3-4 percent from the previous season. This is largely attributed to production shortfalls in some major consuming countries, especially the big Asian consumers whose imports are forecast at a much higher level than in the previous season.
In China (Mainland), domestic demand is expanding at a fast pace, propelled by an economy that continues to grow at a high rate. Much of the expanding demand has to be satisfied with imports considering that domestic production is increasingly limited, among other things, by the continuous decline in the availability of arable land. Imports by China are anticipated to increase by at least 30 percent from the previous season. As far as India is concerned, imports are projected to expand by over 16 percent from the previous season’s level, due to a combination of lower domestic output and dwindling stocks. Palm oil imports, in particular, should benefit from a recent 15 percent reduction in India’s import tariffs on refined palm oil and palm olein. Import purchases by some of the other big importers, such as the Islamic Republic of Iran, Pakistan and Mexico are also forecast to rise.
Among the developed countries, imports by the EU, the largest importer of oils (including the oil contained in oilseeds purchased) are expected to expand only modestly, although its purchases of sunflower oil, especially from eastern European countries, are anticipated to grow appreciably from the previous season due to increased availability of exports from the major suppliers.
On the export side, although total exports of oils/fats are forecast to increase, the trends for the individual oils/fats are forecast to differ greatly. Of the eight major oils/fats, only soybean and sunflower oils are expected to show an appreciable increase in export volumes. The others would either register modest increases, stagnate or decline. With regard to palm oil, whose trade underwent a steady increase during most of the 1990s, exports during the current season are projected to show only a slight rise owing to reduced growth in export availabilities in Malaysia and Indonesia.
As to soybean oil shipments, the shift in market shares, that started in recent years, among Argentina, Brazil and the United States - the three major exporters of the commodity globally – is expected to continue. This is due to the combined effect of reduced exportable supplies in the United States and record supplies in Argentina and Brazil. Thus, these two countries are expected to gain more share of the global market at the expense of the United States. Exchange rate developments during the season have provided additional competitiveness to exports from Argentina and Brazil.
For sunflower oil, the anticipated recovery in trade is a consequence of improved production in the major suppliers. By contrast, rapeseed oil trade is forecast to undergo a decline for the third consecutive season due to limited availability of supplies from the major exporters.
As far as the oilcakes and meals are concerned, global trade (including the meal contained in oilseeds traded) is expected to increase but at a reduced rate compared to the average of recent seasons. This is attributed mostly to the reduced profitability of livestock production in a number of countries and increased supplies of feed wheat - a close substitute.
Although imports by the EU – the largest importer of oilmeals (including the meal contained in imported oilseeds) – could stagnate at the previous season’s level, import purchases by China – the second largest importer globally - could increase by over 50 percent largely due to a shortfall in domestic output.
With regard to meal exports, Argentina and Brazil are, again, forecast to capture more of the expanding market at the expense of USA whose share would be eroded due to reduced availability of export supplies and reduced competitiveness. China is also increasingly becoming an important source of oilmeal exports given its expanding domestic crushing industry that is resulting in surplus production.
Similar to the previous two seasons, global trade in oilmeals is expected to increase its dependence on soybean meal as limited availability of many of the other major meals continues to constrain their trade.
While planting of the 2003/04 (October/September) season crop is underway in some of the northern hemisphere countries, some of the southern hemisphere countries are yet to conclude harvesting of the current season’s crop. The information currently available from some of the major producing countries in the northern hemisphere is inconclusive with respect to the likely direction of the 2003/04 global oilseeds production.
In the United States, planting of the next season’s soybean crop has started and, according to USDA reports, the soybean area could decline by about 1 percent from the current season’s level which, if it materializes, would be the third consecutive reduction in area. Farmers are reportedly planning to plant more maize at the expense of soybeans due to the currently more favourable futures price for maize. In addition, when compared to farm legislation in force until 2002, the loan rate in the new US Farm Bill is less favourable to soybeans vis-à-vis competing crops. Planting of most of the other oilseeds (sunflower, rapeseed and groundnuts) is expected to decline, except for cottonseed, the area of which is forecast to expand.
In the EU, while rapeseed area could benefit from the currently favourable prices, sunflower output is projected to continue on its declining trend. In China, oilseed production is forecast to expand by about 4 percent from the 2002/03 estimated output, mostly due to gains in rapeseed area and yield improvement. In Canada, rapeseed area is forecast to increase by about 12 percent due to current and anticipated favourable relative crop prices. Although a return to near-normal yields in Canada and Australia could lead to a fall in rapeseed prices from their high levels observed during the 2002/03 season, low carry-in stocks will likely ensure that prices remain relatively strong.
As has been the case in recent seasons, the volume of global oilseeds output will again be determined by what happens in the major producing countries of the Southern Hemisphere, where the area planted to oilseeds will largely depend on market conditions prevailing at the time of sowing (i.e. October-December 2003).
1. Note on methodology: 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. Note that this section discusses expected developments in the production of oils and meals of all origins, which - in addition to products derived from the oilcrops discussed in the previous section - include palm oil, marine oils and meals as well as animal fats.