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India's Appetite for Vegetable Oil To Continue

Amidst recent import policy changes, India remains the global leader of imported vegetable oils. In March 2018, the Government of India imposed higher tariffs on imported vegetable oils as well as the cess tax imposed on imports. This jump in tariffs has cast doubt on India's import prospects for vegetable oil, especially for palm oil. For crude palm oil, the effective duty has jumped from 7.73 percent in September 2016 to 48.4 percent in the most recent tariff changes. (The cess tax is imposed on the tariff itself. Thus, the educational cess tax (3 percent in September 2016) is imposed on the 7.5 percent tariff, leading to the effective tariff rate of (7.5 * 1.03 =) 7.73 percent. Recently, the cess tax has increased to 10 percent, while the tariff rate has jumped to 44 percent. Hence, the effective tariff rate is (44 * 1.1 =) 48.4 percent.) The duty for refined palm oil is even higher, reaching an effective rate of 59.4 percent. While soybean oil import tariffs are unchanged in the recent update, it should be noted that the effective duty has jumped from 12.9 percent to 33 percent in the last couple of years. While the intention for such tariffs is ostensibly to support domestic oilseed prices and the Make in India movement, it has also dampened the outlook for India's vegetable oil imports in the current marketing year.

Despite these changes in tariffs, however, several factors suggest India’s robust imports of vegetable oil will continue. First, Malaysia's decision to extend the export tax exemption, coupled with the strengthening of the Indian rupee in comparison to the Indonesian rupiah, may add tailwind to the purchasing power of palm oil in India. The proximity to major suppliers in Malaysia and Indonesia adds to the competitiveness of palm oil as well. Second, weatherimpacted crops in Argentina and strong biodiesel demand are forecast to reduce exportable supplies of soybean oil to India, regardless of favorable tariffs, and would likely lead to more demand for palm oil in India. Third, even with relatively competitive prices, global sunflowerseed oil supplies are tighter than last year, limiting options to satiate growing demand for the so-called "golden" oils, leading to more demand for palm oil. Growing demand within the domestic market also provides tailwind to India vegetable oil imports. Home to one of the most robust economies in the world, India has an annual population growth of roughly 15 million, and 10 million people move to urban areas each year. With increasing disposable income, changing diets and preferences, and a growing hotel/restaurant/institution sector, per capita food oil consumption in India continues to grow at a strong rate. As more people migrate towards urban areas, where food retailers and restaurants are more abundant, India's per-capita consumption is expected to rise towards average global levels.

As such, USDA maintains its import forecast of 10.6 million metric tons of palm oil in India for 2017/18. While India boasts large domestic production capacity of vegetable oil, current USDA crop and crush forecasts suggest that the imported oils will exceed two-thirds of total domestic use in 2017/18. While the competitiveness of different oils is impacting the composition of India's import portfolio, its appetite for affordable vegetable oils continues to grow.

Despite Overtures Elsewhere, Mexico Remains A Major U.S. Oilseeds and Grains Buyer

Mexico has long been a major importer of U.S. corn, wheat, soybeans, soybean meal, and dried distillers grains with solubles (DDGS). With a combination of a modest GDP and population growth, consumers’ demand for meat products has been driving imports of feed ingredients higher. In 2017/18, Mexico is forecast to import 4.4 million metric tons of soybeans, 2.1 million tons of soybean meal, and 16.2 million tons of corn. Pork and poultry production in 2018 are each projected up about 3 percent.

Despite the Mexico’s recent efforts to diversify origins of agricultural imports, as well as concerns over potential changes due to NAFTA renegotiations, oilseeds import decisions continue to be mainly based on price and the availability of credit. While Brazil has emerged as a competitor to the United States in the Mexican market, soybean shipments have been marginal. While Mexico imported over 650,000 tons of corn from Brazil between September and January (compared to 4,000 tons in the same period during the last marketing year), purchases from South America are not entirely surprising. In previous years, Mexico has been known to import corn both from Brazil and Argentina; however, the United States has always remained the major supplier. While lower commodity prices may occasionally drive some purchasers of grains and oilseeds to South America or other origins, it is expected that the United States will remain the major supplier to Mexico due to its advantage of proximity and logistics.

As of the week ending March 29, total commitments of soybeans (accumulated exports plus outstanding sales) of 3.6 million tons are 10 percent above last year and nearly 30 percent above the most recent 5-year-average. Last year, the United States exported 3.9 million tons of soybeans and 1.7 million tons of soybean meal to Mexico, valued at $1.6 billion and over $600 million, respectively. Although current total commitments of 1.4 million tons soybean meal are slightly below last year, Mexico remains the second most important market for U.S. soybean meal. For corn, total export commitments of nearly 12.1 million tons are slightly above that at the equivalent time last marketing year. Year-to-date U.S. corn exports to Mexico this marketing year (Sep-Feb) have reached 6.8 million tons, valued at $1.2 billion. Corn exports to Mexico totaled 13.9 million tons, valued at $2.5 billion, in 2016/17.

OVERVIEW

Global oilseed production is forecast lower this month at 569 million tons. Soybeans are down significantly as smaller crops in Argentina, Uruguay, and India more than offset gains in Brazil. Rapeseed production is up slightly on a larger crop in Belarus. Sunflowerseed production is slightly higher as gains for the European Union exceed reductions for Argentina. Soybean exports are slightly down this month as reductions for Argentina and Uruguay outweigh higher shipments for Brazil, Russia, and Ukraine. Global imports are up this month on higher estimates for Mexico and Russia. Sharply lower soybean ending stocks are forecast for Argentina and Brazil in response to lower production and larger export volumes, respectively. The U.S. season-average farm price for soybeans is unchanged at $9.30 per bushel.

SOYBEAN PRICES

U.S. export bids in March, FOB Gulf, averaged $409/ton, up $20 from the previous month. In comparison, FOB Brazil Paranagua averaged $414/ton, up $19/ton from last month. FOB Argentina Up River averaged $401/ton, up $18 from last month. Prices have risen sharply in response to crop losses in Argentina. Strengthening soy meal prices, together with initial signs of an uptick in demand for U.S. supplies, added support.

April prices have been trending higher on growing supply concerns following the reduced planting intentions reported in the Prospective Plantings report.

For the week ending March 29, U.S. 2017/18 soybean export commitments (outstanding sales plus accumulated exports) to China totaled 28.7 million tons compared to 35.2 million a year ago. Total commitments to the world are 51.5 million tons, compared to 55.1 million for the same period last year.

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