A giant mountain of canola seed, soybeans and other vegetable oil crops looms over the edible oil market.
But rather than shiver in the shade, the market is hot, lifting prices well above the valleys some farmers had grown accustomed to.
It’s a testament to incredible demand growth.
“It’s pretty amazing,” said Ag Commodity Research canola analyst Don Roberts about today’s odd conjunction of high stocks and high prices.
Broker Ken Ball of Union Securities said a supply situation similar to today’s would have sent prices crashing two years ago, but the market now sees oilseed stocks as comparatively short.
Read Also
Global pulse consumption to grow
Global per capita pulse consumption is expected to rise 23 per cent by 2034.
“The demand is there. That’s what matters,” said Ball.”We’re going to be looking at a mammoth supply of soybeans (this autumn) – absolutely mammoth. But we will still be drawing (year end) soybean stocks down.”
World demand for vegetable oils appears to be growing faster than the rapid increase in supply.
According to Agriculture Canada’s Bi-weekly Bulletin, vegoils have become the world’s leading agricultural trade commodity.
“For 2006-07, the value of world vegetable oil trade is expected to exceed the value of world trade in wheat and be more than twice the value of the trade in corn,” said the bulletin’s vegetable oils report written by analyst Chris Beckman.
World vegoil supplies continue to surge, up three percent this year to 132 million tonnes. But a 35 year trend of increasing consumption is keeping prices high.
“Despite the expected small decline in stocks, world prices for vegoils have increased sharply for 2006-07,” said the report.
The report and Roberts credit the same three factors for the boom in demand: healthier eating habits in North America; biodiesel production and the world’s increasing population.
“There’s a big increase in the U.S. market for healthier oils,” said Roberts.
The amount of vegetable oil crops that the world’s farmers can produce now is much larger than in 2001. Palm oil production this year is expected to reach 39 million tonnes, up three million tonnes from last year and up almost 15 million tonnes from 2001.
Soy oil production will likely hit almost 36 million tonnes, about 1.5 million tonnes more than last year and up 34 percent from 27 million tonnes in 2001.
Canola oil production has also surged in recent years and will likely hit 18.2 million tonnes this year. Canadian production has doubled from the drought years early in the decade, yet prices are still strong.
Ball said soybean stocks of today’s size, if they had occurred three years ago, would have meant prices of $5 US per bushel, instead of today’s $8.
Canola prices may seem good but not great to Canadian farmers, Ball said, but if they are converted to U.S. dollar terms, the currency of world trade, they look a lot better.
“Canola is brushing its all time highs,” said Ball.
“It’s very high.”
That’s likely to stick, too, he said.
“So far in the world we’ve been able to produce enough, but it’s going to get harder and harder to keep growing these large crops,” said Ball.
When biodiesel demand really begins kicking in, in about 2008, the relative tightness of vegoil crop stocks might leap into the market’s focus, as corn has in the past year, Ball and Roberts said.
The Agriculture Canada report forecasts strong prices for vegetable oils for years, as Chinese and Indian demand growth swallows whatever increases the world’s farmers can produce.
“Vegoil consumption is projected to rise by 13 million tonnes by 2015 in China and India alone, assuming the current pace in the growth of population and per capita consumption in those two countries continues,” said the report.
“World vegoil production is projected to rise by 25 percent to 154 million tonnes by 2015.”
