Global Vegetable Oil Production on the Rise

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.

Soybean oil
Oct. 23, 2018
By Daniel Dawson
Soybean oil

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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 Also: 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.”

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