Vegetable Oil Prices on an Upward Trend

Vegetable oil prices have risen appreciably over the last 3 months, adding nearly $100 or more per ton to prices depending on the oil. The magnitude of price gains has been the greatest for the lower-priced oils, particularly palm oil, resulting in a narowing of the price spread among the four major oils. The spread between palm and rapeseed oil fell 50 percent from nearly $360/ton to $180/ton while the spread between palm and soybean oil declined roughly 75 percent from nearly $160/ton to near $40/ton.

Palm oil has been the principle driver in the vegetable oil market as strong demand growth has been met with limited growth in supplies. Global consumption of palm oil grew an estimated 6 million tons in 2019, roughly double the growth in global production, leading to a draw-down in stocks. This strong demand is in part a reaction to the low palm oil prices seen earlier in the year as well as rising demand for biodiesel, particularly in producing countries. In China, import demand for all oils has accelerated as a reduction in oilseed crush, a function of lower demand for protein meals in response to African Swine Fever, has curbed local supplies.

As the price gap between palm oil and the other major oils has declined, buyers are beginning to look to other oils as they become relatively less expensive. However, exportable supplies of both soybean and rapeseed oil remain tight. Strong demand for fuel use of soybean oil in both Brazil and the United States has restricted export availability despite the return to higher crush in Argentina. Rapeseed oil supplies are also limited by an inability to expand crush significantly in Canada despite large seed stocks. And while sunflower oil is relatively more plentiful, it is not sufficient to offset tightness in the other oils. Accordingly, current price strength is expected to continue until growth in palm oil supplies exceeds demand.

PROJECTION FOR 2019/20

Global 2019/20 oilseed production is forecast at 575 million tons, nearly unchanged from December with a larger soybean and sunflowerseed crops offsetting declines for palm kernel, cottonseed and rapeseed. Oilseed crush is raised 190,000 tons to 497 million on higher soybean crush in China and Mexico. Oilseed ending stocks also grew nearly 1 million tons mainly on the larger sunflowerseed crop in Russia and reductions in feed, seed and waste consumption for soybeans in Brazil.

Protein meal production is up 288,000 tons from last month to 339 million primarily on higher soybean meal production in China and Mexico. Protein meal ending stocks are nearly up 1 million tons on larger soybean meal stocks in Brazil, Mexico, and Russia. Vegetable oil production is down 560,000 tons as declines in palm oil more than offset slightly higher soybean oil production. Oil exports are reduced 550,000 tons mainly on lower palm oil shipments from Malaysia. Oil ending stocks are up slightly from December at 20 million tons but still the lowest in 5 years. The projected U.S. season-average farm price for soybeans is raised to $9.00 per bushel.

CHANGES TO 2018/19

Global 2018/19 oilseed production is nearly unchanged at 597 million tons. Oilseed imports are up nearly 1 million tons on final year-end soybean imports for Mexico. Oilseed crush is up nearly 400,000 tons on higher soybean, rapeseed, and peanuts. Protein meal production is up 300,000 tons on higher soybean meal in Mexico and rapeseed meal in China. Meal ending stocks are up nearly 1 million tons due in part to raised soybean meal stocks in Brazil and Mexico. Vegetable oil production is nearly unchanged at 203 million tons.

EXPORT PRICES

Both soybean and soybean meal export prices strengthened in December. U.S. Gulf FOB soybean export bids in December averaged $363/ton, up $6 from November. Brazil Paranagua FOB averaged $369/ton, unchanged from November. Argentina Up River FOB averaged $367/ton, up $14. U.S. soybean meal export bids in December averaged $344/ton, up $5 from November. Brazil Paranagua FOB averaged $326/ton, up $7 from November, and Argentina Up River FOB averaged $331/ton, up $12. The U.S. and Brazil FOB soybean price spread has narrowed as Brazil’s FOB soybean price averaged 2 percent above U.S. prices, slightly less than 3 percent last month.

EXPORT SALES

For the report ending January 2, 2020, U.S. soybean accumulated exports (shipments) to China totaled 9.4 million tons and 9.7 million to the rest of the world. Outstanding sales were 1.7 million tons to China and 7.8 million to the rest of the world. Last year at this time, accumulated exports to China were 474,000 tons and 12.7 million to the rest of the world, and outstanding sales to China were 3 million tons and 12.5 million to the rest of the world. U.S. soybean export commitments (outstanding sales plus accumulated exports) to China totaled 11.2 million tons compared to 3.5 million a year ago. Total commitments to the world were 29.8 million tons, compared to 30.4 million for the same period last year.