Trump Trade War Poses Problems for Oilseed and Vegetable Oils

Summary

Oilseed and veg­etable oil prices fell last month due to the U.S.-China trade con­flict, with soy­bean prices drop­ping by eight per­cent and veg­etable oil prices by three per­cent, accord­ing to the FAO. The drop in prices was largely attrib­uted to China’s addi­tional 25 per­cent import tar­iff on U.S. soy­beans, lead­ing to a decrease in soy­bean futures and poten­tial long-last­ing effects on oilseed prices.

Oilseed and veg­etable oil prices fell last month as soy­beans came into the crosshairs of a steadily increas­ing U.S.-China trade con­flict.

Oilseed prices fell by eight per­cent to reach a 17-month low and veg­etable oil prices suf­fered a fifth con­sec­u­tive fall, decreas­ing by three per­cent, accord­ing to the Food and Agricultural Organization of the United Nations (FAO).

“The Chinese government’s announce­ment of an addi­tional 25 per­cent import tar­iff on U.S. soy­beans […] has weighed heav­ily on the soy­bean mar­ket, with strong spillover effects on soymeal as well as on the oilseed com­plex as a whole,” last mon­th’s FAO com­mod­ity report stated.

“With respect to veg­etable oils, the drop in FAO’s price index mainly reflects lower quo­ta­tions for palm, soy­bean and sun­flower oil.”

China is the world’s largest importer of soy­beans, account­ing for 60 per­cent of global trade in the com­mod­ity. As a result of these counter tar­iffs, global mar­kets were rat­tled and soy­bean futures have slumped to a level at which U.S. farm­ers will begin to lose money with­out fed­eral sub­si­dies.

“There is a close con­nec­tion between soy­beans and soy oil and there­fore other [veg­etable] oils that com­pete very closely with soy­beans too,” Dan Sumner, the direc­tor of the UC Agricultural Issues Center at the University of California, Davis, told Olive Oil Times.

He said that retal­ia­tory tar­iffs imposed by China on U.S. soy­beans will have a larger effect on oilseed prices in the short run, but depend­ing on where else U.S. farm­ers sell their soy­beans, may have longer last­ing effects too.

“China is a huge importer of U.S. and Brazilian soy. The effect on the price of American soy is larger in the short run, but may be long-last­ing as the U.S. finds new buy­ers,” Sumner said. ​“The U.S. also has a big soy­bean crop com­ing this year.”

As a result of all this extra soy and slump­ing prices, many U.S. farm­ers have decided they will not sell. Marcel Smits, the chief finan­cial offi­cer of the world’s largest agri­cul­tural trader — Cargill, told the Financial Times that it now makes more sense for farm­ers to ​“opti­mize their flows” rel­a­tive to tar­iffs and prices.

“Sales of the remain­ing 2017 vol­ume has sig­nif­i­cantly slowed as U.S. farm­ers hold back,” he said.

Meanwhile, global olive oil prices have remained steady, over­all, accord­ing to the most recent data from both the St Louis Federal Reserve and European Commission. According to the research of the UC Agricultural Issues Center, olive oil prices are not usu­ally affected by veg­etable oil or oilseed prices.

“Our data and detailed sta­tis­ti­cal analy­sis has shown lit­tle link­age between the broader veg­etable oil mar­ket and that of olive oil based on U.S. olive oil import price data,” Sumner said. ​“Olive oil prices are very high com­pared to soy oil or canola oil, for exam­ple. Our data show that the other oil prices tend to move together and olive oil fol­lows its own path.”

Olive oil con­sump­tion also appears to be unaf­fected by oilseed and veg­etable oil price changes. Studies in the U.S. have found that even when the prices of these com­peti­tors decrease, olive oil demand does not change.

“We found that in the U.S., the quan­tity of olive oil con­sumed fell when olive oil prices rose and quan­tity of olive oil used rose when olive oil prices fell,” Sumner said. ​“But, there was no response of olive oil con­sump­tion to the prices of other veg­etable oil.”

“That is, there is the expected demand rela­tion­ship between olive oil con­sump­tion and its own price and no rela­tion­ship between the other oil prices and olive oil con­sump­tion,” he added.

• FAO


• European Commission