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.