Vegetable oil sees a slowing production growth globally & 17.5 million metric tons of palm oil will be used for biodiesel

Vegetable oil sees a slowing production growth globally & 17.5 million metric tons of palm oil will be used for biodiesel

Your Bi-weekly update on edible oils & fats by Aveno
August 28th, 2019

Going back in time.... First a Dr. AVENO flashback

Many seem to have forgotten the so called “mother of all demand”, just more than a decade ago, when the world experienced a dramatic increase in food and fuel prices. According to the Food and Agriculture Organization (FAO), in the first half of 2008, international nominal prices of all major food commodities reached their highest levels in nearly 50 years and prices in real terms were highest in nearly 30 years. So if today’s modest price increases frighten you: “you ain’t seen nothing yet”.

source: FAO

Edible oil prices continue firming.

Globally the market sees a slowing production growth, versus growing demand, which may lead to a shortage in the future. The price formation is always an anticipation of stocks at the end of the marketing year and these ending stocks are of course the result of supply and demand. 

We saw a rebound in palm oil prices due to growing import demand in China and India as well as some spill-over effects from competing vegetable oils and growth in biodiesel demand. International soybean oil prices firmed with rising soybean values, supported by lower than anticipated crush volumes in the U.S. and firm biodiesel demand in a couple of  countries.

Sunflower oil prices increased due to a slowdown in crushing in the Black Sea region and healthy global import demand. Rapeseed oil prices went up, mostly reflecting a disappointing crop in Europe, reduced exportable supplies in Ukraine and good biodiesel margins in EU. The prospects for European and Black Sea rapeseed doesn’t look good as farmers are losing interest to grow rapeseed. This is something to follow up closely in the coming year.

Even though prices are firming, expressed in $ per metric ton, only rapeseed oil and lard are more expensive compared to a year ago (on July 17th 2018 one € = $1.1611 and on August 22nd 2019 one € = $1.1083):

source: Oil World, EU Commission

The global demand growth is coming mainly from biodiesel and this calendar year alone, globally, 17.5 million metric tons of palm oil will be used for biodiesel. As biodiesel productions increase in Malaysia, Indonesia, Brazil, the U.S.,… this will at a certain point trigger the discussions about “food for fuel” and deforestation. Allegedly the 71.000 fires in the Amazon forest, reported in 2019, are linked to soybean cultivation and cattle raising.

In a recent communication, setting out a framework of actions to protect the world’s forests, the European Commission states:
The main drivers of this deforestation are demand for food, feed, biofuel, timber and other commodities 
There is concern but how this problem will be tackled on a global scale is another pair of sleeves. Rising prices of vegetable oils may be the cure to rising biodiesel production as they would deteriorate the profitability relative to fossil fuels but if policy makers mandate or subsidize biodiesel…., it may be a measure for nothing.

Petroleum price on August 28

Brent Price: $59.95 per barrel

Evolution of the U.S. dollar versus the European currency from July 2018 till now

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Unless otherwise mentioned the crude oil values quoted in these documents are prices landed in EU without import duties, handling, storage, financing, refining, packing, transport or any other cost related to bring the product to market. They are used as market trend illustration. Substitution of oils is possible but different oils have different fatty acid profiles and are not all interchangeable for all applications. One can make biodiesel from all oils and fats but one cannot make mayonnaise from coconut oil. This document is exclusively for you and does not carry any right of publication or disclosure. This document or any of its contents may not be distributed, reproduced, or used for any other purpose without the prior written consent of AVENO. The information reflects prevailing market conditions and our present judgement, which may be subject to change. It is based on public information and opinions which come from sources believed to be reliable; however, AVENO doesn’t guarantee the correctness or completeness. This document does not constitute an offer, invitation, or recommendation and may not be understood, as an advice. This document is one of a series of publications undertaken by AVENO and aims at informing broadly a targeted audience about the edible oils & fats market. AVENO’s goal is to keep this information timely and accurate however AVENO accepts no responsibility or liability whatsoever with regard to the given information.

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