Palm oil stocks aren’t exactly riding to canola’s rescue, but they’ve
eased their relentless pursuit of world vegetable oil markets.
But analyst Charlie Pearson of Alberta Agriculture said soybean crops
are still threatening to keep oil prices corralled.
“We need to increase soybean oil exports out of the U.S. in the next
year,” said Pearson at the Grain World conference.
“For guys to get optimistic about canola prices in the coming year,
that has to happen.”
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The price of canola, with its high oil content, is strongly linked to
soybean oil.
Canola has been selling at a high spread to soybean oil, but the price
isn’t as good as many producers expected. There are low stocks of
canola, but prices are well below the levels of the mid- to late-1990s.
That’s because huge soybean oil stocks have been built up by big crops
in the United States and South America. Also, the palm oil trade has
been growing, Pearson said. Canola prices can go only so high compared
to soybean oil before buyers start substituting other oils.
Soybean production in the U.S., Argentina and Brazil has almost doubled
since 1990.
Palm oil production has skyrocketed since the early 1970s, when it was
only as big as the canola industry. Canola production is still far
below soybean oil production, and has been falling further behind for a
few years. But palm oil production has been reaching up to meet soybean
oil, which is also rapidly expanding.
Trade in palm and soybean oil was neck and neck as recently as the
early 1980s, but palm is now double the world soybean oil trade.
Fortunately for edible oil markets, world consumption kept up with
increasing production until recently. But lately, palm production
caused the cup to overflow.
“Palm oil is becoming more and more of a player,” said Pearson. “That
will continue in the future.”
The good news is that the growth in palm oil production appears to be
slowing. That may be a temporary phenomenon, but it takes some pressure
off prices. Palm oil stocks should fall this coming year.
But both the U.S. and South America appear ready to produce large
soybean crops. There has been heavy demand for soybean meal, which
leaves lots of soybean oil on the market.
Until American soybean oil stocks are reduced, canola’s price will
remain restrained.
