Strong harvests for a variety of oilseed and other vegetable oil products have led to a record-high year in terms of production. However, demand remains steady and some analysts worry about the effect on prices.
A new report from the United States Department of Agriculture (USDA) predicts that vegetable oil production will hit a record high at the end of the 2018/19 harvest season.
According to USDA data, production will rise to 204 million tons, a three-percent increase compared with last year.
A bumper crop of soybeans in both Brazil and the United States; a “surprisingly high” yield of palm oil from Southeast Asia; and a strong year for sunflower growers in Ukraine all contributed to the record production.See more: Olive Oil Production Data
However, not all crops in the vegetable oil sector had a good year. The USDA predicts that oilseed production will slightly decrease due to a disappointing canola harvest in the European Union and Australia and a bad year for peanuts in both the United States and India.
Even so, some analysts are worried that this surplus of vegetable oil will continue to push down global prices and that some of what is produced will have nowhere to go. Crude edible oil prices have already fallen by 11 to 25 percent, in part, due to excess supply and decreasing demand in larger markets, such as India and China.
“In the wake of this trend in supply, pressure on prices will persist in the international vegetable oil markets,” the German Union for the Promotion of Oilseed and Protein Plants (UFOP, for its German initials) said in a statement.
Part of the supply glut comes from soybeans and soybean oil. Global stocks were relatively high at the beginning of the harvest season, in part due to trade tensions between the United States and China.
“U.S. export sales and shipments of soybeans started the 2018/19 season in September more slowly than usual,” economic research analysts for the USDA wrote in a monthly report.
“The overall pace is the lowest in seven years due to a steep decline in trade with China,” the authors of the report added. “The altered composition of U.S. export markets this year may be shifting a higher percentage of shipments into the second half of 2018/19.”
According to Mark Ash and Mariana Mathias, two members of the USDA’s Economic Research Service, Chinese demand is currently being met by Brazilian and Argentine producers.
The two wrote that demand from traditional destination markets for Brazilian and Argentine soybeans and soybean oil will instead be serviced by American producers next spring, alleviating the glut and decreasing the pressure on prices.
As for the increases across the rest of the vegetable oil sector, analysts from UFOP suspect that while demand for edible vegetable oil will remain largely unchanged, policy regarding biofuels will have to adjust accordingly.
“Prices of vegetable oils have long since decoupled from crude oil prices, forcing vegetable oil producing countries to adopt more active biofuel policies,” UFOP said in a statement. “Countries such as Indonesia, Brazil and Argentina have tried to handle the price pressure by raising biofuel mandates.”