From frying chips and mixing salad dressings to the production of biodiesel. Vegetable oils are versatile in use. It is therefore not surprising that the demand for it is so high. However, adverse weather conditions have severely reduced production of the key raw materials for vegetable oils.
The United States Department of Agriculture (USDA) recently lowered its yield forecast for soybeans by 9,5 million tons and two weeks ago the production of palm oil in Malaysia was already much lower than expected. Government agencies in Canada also calculate with the lowest rapeseed harvest fourteen years time. The production of rapeseed is also declining in the European Union; this is a long-term trend, partly caused by the many restrictions on the use of plant protection products. The cultivation of rapeseed has therefore become too risky for many growers. At the same time, there are vegetable oil producers who are forced to reduce production due to high energy costs.
Limited supplies have pushed prices to record highs in recent months. The Matif quotation for rapeseed reached a record €7 per tonne on Friday 828 January. However, that level turned out to be too high for many buyers. On Friday, January 21, the price closed lower, at €757 per tonne. That is still much higher than in previous years. Before the corona pandemic, rapeseed often did not exceed €350 per tonne. Soybean oil already reached a record price on Tuesday, June 8, of €1.304 per tonne. In the weeks that followed, the listing on the CboT in Chicago fluctuated between €1.039 per tonne and €1.275 per tonne. Friday 21 January closed at €1.222 per tonne. That was an average of €650 per tonne before the corona pandemic.
The listing for palm oil on the Mdex has also been breaking record after record for weeks. In mid-November, a quotation of 5.449 Malaysian ringgit per tonne was reached. Converted to euros – at the current exchange rate – this amounts to €1.148 per tonne. On Friday, January 21, the palm oil price closed at €1.138 per tonne. Two years ago that was 'only' €520 per tonne. The two largest producers, Malaysia and Indonesia, are experiencing the consequences of the corona crisis. As a result, foreign workers are not available. This decimates production. The smaller product groups, including olive oil en sunflower oil, have risen sharply in price in recent months.
Demand remains high
For the time being, no reversal in the prices of vegetable oils is expected either. This is primarily due to the high listing of Brent oil. who passed last week the $87 per barrel mark. The week even ended with a price of $88,25 a barrel. A level that has certainly not been seen since 2014. And due to rising tensions between Russia and Ukraine, a sharp fall in oil prices is not expected for the time being, insiders report. At the same time, the rally in oil prices is boosting biodiesel production. Vegetable oils are an important ingredient for this.
A second reason for the high prices is the fact that India, a major consumer of vegetable oils, will be dependent on vegetable oils from abroad for at least the next fifteen years. Solvent Extractors' Association expects consumption in India to increase by no less than 17% over the next four years. This widens the production gap: the country is expected to produce 2021 million tons of vegetable oils in the 2022/10 season, while local consumption is around 23 million tons. Local farmers should be motivated to grow rapeseed and sunflower varieties, for example, instead of rice, wheat or cotton. The current high prices there are not enough to achieve this. Government intervention is required for this, the organization reports.
Thirdly, high production costs also play a role in the increased prices for vegetable oils. Producers are scaling back production, as described. This makes the offer even smaller. Other parties choose to implement price increases. These price increases eventually reach the consumer. In the olive oil market this was recent already visible. The price of olive oil at British supermarket chain Sainsbury's rose by 30% last November. Sunflower oil is also rising fast. Several countries therefore choose to fixed prices to handle.
Lighting later in the year
Market analysts at Bloomberg say that the situation in the vegetable oil market could soften somewhat later in the year. France and Germany have planted more rapeseed, data show. At the same time, Canadian growers are expected to grow more rapeseed. Especially when wheat prices fall. The soybean market is also favorable. On the other hand, in the palm oil market little space for expansion. Indonesia itself wants to use more palm oil for the production of biofuels. This is at the expense of supply on the world market. But if soybean oil and rapeseed oil become cheaper, palm oil will automatically drop in price. After all, the three oils are firmly attached to each other.