Bunge posts strong third quarter results as an increase in biofuel production drives global demand for vegetable oil
Oilseed crush margins are sensational and demand for the commodity should remain strong in 2021, according to one of the world’s biggest crushers.
Bunge chief executive officer Greg Heckman said the company posted impressive results in the third quarter of 2020 because of surging global demand for oil and meal.
“We achieved record crush utilization and captured exceptionally strong margins,” he said in a news release announcing the results.
“Looking into the next year, we expect many of the favourable trends to continue with demand for our products remaining strong. We also expect additional global demand for vegetable oil from the growth of biofuels.”
The company’s oilseed division posted earnings before interest and taxes of US$392 million for the quarter compared to $112 million for the same quarter one year ago.
During a conference call with investment analysts, Heckman said there has been a tightening in the vegetable oil complex in South America and Europe.
On the demand side there has been improved oil demand in the food channel and incremental demand in the biofuel sector as obligated parties exceed mandated volumes.
Heckman was particularly enthused about renewable diesel, which is a drop-in fuel that is chemically identical to conventional diesel. It is a new source of demand for the vegetable oil market.
“We want to be there to service that growth,” he said.
Chris Vervaet, executive director of the Canadian Oilseed Processors Association, said the renewable diesel industry is taking off in California thanks to the state’s Low Carbon Fuel Standard.
The standard is resulting in a large buildout of renewable diesel production capacity in California, which has his Canadian members salivating about what could happen with a properly designed Canadian Clean Fuel Standard.
“If the Low Carbon Fuel Standard can derive that type of demand in the States, we think about what might be possible here in Canada,” he said.
California’s renewable diesel plants are using used cooking oil and tallow as feedstocks but it is only a matter of time before they start incorporating vegetable oils into the mix, said Vervaet.
U.S. regulations currently prohibit the use of canola oil as a renewable diesel feedstock, but the industry is working with the U.S. Environmental Protection Agency on fixing that.
“At the moment we’re kind of on the outside looking in because we don’t have that pathway approved,” he said.
In the meantime, Heckman sees continued strong demand for oilseeds as China ramps up its purchases of the commodity. That will lead to a further tightening of the oilseed market.
China’s rapid economic recovery from COVID-19 has boosted oil demand in that country. As well, the country’s pork herd is recovering “much more quickly” from African swine fever than originally anticipated.
Heckman said the market believes China’s hog herd is about halfway back from pre-COVID levels, which is spurring meal demand in that country along with bigger poultry flocks.
The International Grains Council said global stocks of canola/rapeseed are expected to “fall markedly” in 2020-21, led by a decline in Canada.
It is forecasting a drop of slightly more than one million tonnes in world stocks, primarily because of tighter supplies and strong exports out of Canada.
Vervaet said demand from Canada’s canola crush sector has also been robust with his members operating at a combined 90 percent capacity year-to-date.
“That’s a strong number for us,” he said.