Oilseeds, Oils and Oilmeals^1/

Growth in world oilseed production to accelerate in 2003/04

Prospects for the current marketing season point to a new record in total oilseed output. In 2003/04 (October/September), global production is forecast to increase 5.6 percent above the previous season’s level, which corresponds to an additional 19 million tonnes. This forecast is based on the anticipated significant output increases in Asia (in particular China and India) and the bright production prospects reported for South America, which are anticipated to more than offset the production declines expected both in the United States and the EU.

World Production of Major Oilseeds

World soybean production is forecast to increase by almost 6 million tonnes. Record performances are anticipated particularly for the Argentine and the Brazilian crops, which are projected to rise for the fifth consecutive year. South American soybean farmers are expected to respond to the ongoing price increase by expanding total plantings by another 10 percent. Furthermore, assuming normal-to-favourable weather conditions, yields are provisionally set around last season’s record level, which sill exceed those of the United States again. In Brazil, uncertainty surrounding genetically modified (GM) seeds has come to an end, as the cultivation of GM soybeans was finally authorized in September 2003. If the expected reduction in production costs associated with the use of the new varieties materializes, this could further increase the competitiveness of soybean vis-à-vis competing crops. In the United States, by contrast, it has been estimated that soybean output will fall significantly for the second consecutive season. Because of unfavourable weather conditions, prospective yield levels are well below average and production is projected to drop by at least 4 percent. As a result, the US share in world production is anticipated to fall to a historical low of 36 percent. In China, soybean output could slightly exceed last season’s record level, whereas in India production is expected to recover fully from last year’s reduced level.

Record global supplies are also projected for sunflower seeds. Output is expected to grow, especially in the CIS and in some eastern European countries, where weather-related losses of winter grains led to extensive replanting, primarily with sunflower seed. In the EU, on the contrary, production forecasts point to a 16 percent reduction as adverse weather reduced yield levels.

Rapeseed production forecasts point to a marked recovery in global output, based on sizeable increases in all major producing regions except the EU and the eastern European countries, where crops have suffered from bad weather. In Canada, output expansion is due to a marked price-driven increase in area as well as a recovery in yields. China’s and Australia’s expansion would also reflect yield improvements. In India, rapeseed and mustard seed production are expected to benefit from adequate soil moisture after a good monsoon season.

Global production of cottonseed is projected to grow, recovering from the reduction that took place last season. Output growth is anticipated mainly in developing countries, and particularly in South Asia. The world output of groundnuts is also anticipated to rise, largely because of favourable weather conditions in India and the recovery of production in the United States. Global production of copra is projected to remain unchanged from last season’s level.

Oilseeds and products: Global supplies, trade and utilization

Sizeable increases expected in both global oil and meal production2/

Based on the above crop forecasts, growth in aggregate production of oils and fats is forecast to accelerate in 2003/04, increasing by about 4 percent, compared to only 2 percent over the past three seasons. Such expansion reflects the increased availability of certain oilseeds combined with the fast growth in crushing capacity occurring in some of the major emerging economies such as China and India. Although production of all soft oils and tropical oils is anticipated to grow, the current season is expected to see a marked slowdown in the production growth of palm oil. This decline is probably the result of reduced planting over the past few years, the biological yield cycle of the trees and the negative effect of recent rainfall shortages on prospective yields. Tighter supplies of palm oil should be offset by increased availability of groundnut, sunflower and rapeseed oil.

About 3 million tonnes of the approximately 5 million tonne rise in oil output is expected to come from developing countries. South America could account for about one third of the increase, while the remaining expansion is projected to take place in Asian countries. Among these, India is set to increase its oil output by more than 10 percent. In China, production should continue to expand, thanks also to massive installation of new crushing facilities. Indonesia, Malaysia and the Philippines are expected to increase their production of tropical oils, partly achieving new record levels. In the Northern Hemisphere, vegetable oil output is projected to increase significantly in Canada, some eastern European countries and the CIS. A modest rise in oil output is expected in the EU, while production levels are forecast to remain about the same in the United States.

With regard to global supplies of oils/fats (i.e. 2002/03 ending stocks plus 2003/04 production), a more modest increase of about 2 percent is expected as carry-in stocks for the new season have dropped substantially, reaching a five-year low. A significant portion of the production increase projected for this season will therefore be used to offset lower initial inventories.

As regards meals/cakes, growth in aggregate output is projected to exceed 5 percent. The sizeable increase is probably set to come from both soybean and non-soybean meals, as crushing of all major oilseeds is expected to increase; this growth will be based on increased demand for seed oils following tighter palm oil supplies. The rise in global soybean meal output is projected to come primarily from Brazil, Argentina, China and India. In the EU, reduced local production of rapeseed and sunflower seeds is expected to lead to a drop in total output to well-below-average levels. The increase in global supplies of meals/cakes is limited to 4 percent, because stocks carried over from the 2002/03 season are exceptionally low.

Reduced expansion in world oil use, but steady rise in global meal consumption

Global utilization of oils/fats is expected to grow only slightly compared to previous seasons, increasing by less than 3 percent. With regard to individual oils/fats, last season’s boost in world oil palm consumption is not expected to be repeated in 2003/04 given the anticipated slowdown in palm oil production growth. The bulk of consumption rise is projected to take place in developing countries, as the result of significant improvements in general economic growth combined with stable population increases. As consumer demand for oils tends to be income elastic in most developing countries, the anticipated growth in per caput income can be expected to stimulate consumption.

The most dynamic markets, relatively speaking, appear to be in Asia and, to a lesser extent, in North Africa. The consumption increase expected in India is particularly noteworthy. The anticipated 5 percent rise implies a full recovery – also in terms of per caput consumption – from the reduction experienced in the previous season or when high domestic prices and reduced rural purchasing power (both related to a shortfall in production) led to a sizeable drop in per caput consumption. Projections for China point to another significant growth in utilization, currently estimated at around 6 percent.

Total oilcakes/meals utilization is projected to expand 4–5 percent. Underlying this forecast is the prospective surge in production of soybean meal combined with a marked increase in the availability of other meals. Almost two-thirds of the increase in apparent consumption is expected to materialize in developing countries, mostly as a result of increased demand in Southeast Asia. Over the past few years, this area has developed into one of the most dynamically expanding markets for oil meals. Rising demand for meals/cakes is the result of increased production of livestock, which in turn is triggered by sustained income growth and concomitant shifts in consumer habits. In the EU, the world’s leading consumer of oil meals, consumption is projected to rise significantly in spite of an anticipated stagnation in livestock production. The explanation for the record consumption lies in this year’s reduced output of domestic feed grain and forage. In the United States, meal consumption is expected to remain unchanged because of a projected reduction in supplies and stagnating livestock production.

Global stock levels to remain below average for oils/fats while improving for meals/cakes

Based on current forecasts, global oil/fats stocks in 2003/04 are estimated to recover only slightly from the previous season’s exceptionally low level. This forecast reflects the prospect of continued tight markets, and growth in global utilization will most likely exceed that of global supplies for the second consecutive season. The global stocks-to-utilization ratio is likely to remain unchanged from the unusually low level of the past season. Regarding meals/cakes, after declining for the last two seasons, total stocks are tentatively estimated to recover about 4–5 percent. The global stocks-to-utilization ratio for meals/cakes is expected to grow slightly, pointing towards a possible weakening of international meal prices during 2003/04. Overall, countries that might replenish stocks during the current season include Argentina, Brazil, Canada, China, India and Malaysia. By contrast, a further draw-down in stocks may occur in the United States.

Slowdown in global trade of oils/fats, but steady rise expected in meals/cakes trade

In 2003/04, global trade in oils/fats could grow much less than in the previous season. Last season’s surge in purchases by key importing countries, in particular China and India, is not likely to be repeated, provided the anticipated recovery of domestic production in these nations materializes. Imports by China and India are currently forecast to climb between 1–3 percent to maximums of 9 million and 5.9 million tonnes, respectively. In traditional importing developing countries in Africa, as well as in Mexico and the Republic of Korea, the steady demand growth is expected to support further expansion in imports. Purchases by the EU are anticipated to surge to a record 11.9 million tonnes, mainly a result of shortfalls in this year’s domestic oilseed production.

Regarding exports, an unprecedented drop in shipments is expected in the United States and the EU as domestic production shortfalls and low carry-in stocks have seriously curtailed export availabilities. Current forecasts for export volumes – 7.5 million tonnes for the United States and 2.7 million tonnes for the EU – would represent 10-year and 8-year lows, respectively. These shortfalls are expected to be more than compensated by a recovery in exports from Australia and Canada as well as new record shipments in Argentina and Brazil. Growth in shipments of tropical oils from Southeast Asia in 2003/04 is anticipated to be rather moderate, compared to the well-marked and steady expansion that has been observed since the mid-1990s.

Palm and soybean oil trade will continue to dominate the market in 2003/04. Also noteworthy is the likely surge in sunflower-seed oil trade, mainly out of the CIS, as sunflower-seed oil is expected to become more competitively priced vis-à-vis competing oils. For rapeseed oil, global trade is forecast to grow, although shipment volume is estimated to remain below that achieved in recent years.

In line with the trend of recent years, global trade in meals/cakes is currently forecast to expand by over 5 percent. Developing countries are expected to further strengthen their position in the world market with respect to exports, and should account for almost 70 percent of total exports in 2003/04. Virtually all exports will originate in South America, where, following the lead of Brazil and Argentina, shipments are anticipated to rise by a further 9 percent, setting a new record of 72 million tonnes in protein equivalent (including the meal equivalent contained in seeds traded). Thus South America’s share in global trade could increase further to reach 60 percent, compared to only 45 percent in 1999/2000. Larger shipments are also expected from China and India, where exports were curtailed last season because of lower domestic supplies. Among developed countries, a sizeable recovery in shipments is expected in Canada, though exports will remain below the record level achieved in 2000/01. By contrast, in the United States, which last season lost its position as the world’s leading exporter, shipments are anticipated to drop by another 8 percent, reaching a five-year low. In the EU, gains achieved in export shipments during the last two seasons are likely to be lost again because of this season’s production shortfalls.

With regard to imports, Southeast Asia will remain one of the main destinations for meal shipments. However, in 2003/04 the share of developed countries in total expansion of shipments is expected to be higher than in previous years. This is because purchases by the EU are forecast to expand strongly, possibly exceeding 19 million tonnes (as usual expressed in protein equivalent and including the meals content of seeds traded) – an expansion caused largely by this year’s shortfall in domestic feed grains and forage output. Among developing countries, import expansion is anticipated to slow down in some Southeast Asian countries, in particular China, where imports experienced a boost last season. By contrast, steady growth in import demand is expected by importers in Africa, Mexico and the Near East.

Improving international prices for oilseeds and oils/fats; falling prices for meals/cakes

Current forecasts for the first half of the 2003/04 season seem to suggest that world prices in the oil complex may continue to show an upward trend. The decline in US soybean production, together with envisaged growth in the demand for end products, is likely to lead to a further reduction in global stocks, which should lend upward support to oilseed prices. Provided the anticipated increase of production in South America materializes, some temporary downward adjustment in prices could occur after February 2004.

International Prices of Oilseed-Based Products

Between the two end products, oils are expected to be the price leaders in most oilseed complexes. Five-year low carry-in stocks of oils/fats and the prospect of a repetition of last year’s unusually low global stock-to-utilization ratio should tend to raise prices during most of 2003/04. In particular, palm oil prices (and this commodity may also face below-average growth in production) could strengthen. As a result of the reduced availability of palm oil, the world vegetable oil market can be expected to react very sensitively to any unexpected developments such as a deterioration of production prospects in South America. Another factor to watch closely is the extent to which higher crushings of high-oil-yielding oilseeds will actually compensate tighter palm oil supplies.

International prices for meals/cakes could move in the opposite direction. Due to the prospective tightness of vegetable oil supplies, crushings of oilseeds – including the high-meal-yielding soybeans – are expected to increase significantly during the current season, possibly leading to an excess of meal supplies relative to demand. The resulting increase in global meal stocks, combined with a higher stocks-to-utilization ratio could bring prices for oil meals under downward pressure. Furthermore, after two consecutive years of decline, the sizeable rise anticipated in the global output of meals other than soy meal could increase competition between different meals, thus contributing to downward price pressure.

1.  Almost the entire volume of oilcrops harvested world-wide is crushed in order to obtain oils and fats for human nutrition or industrial purposes and cakes and meals used as feed ingredients. Therefore, rather than referring to oilseeds, the analysis of the market situation is mainly undertaken in terms of oils/fats and cakes/meals. Hence, production data for oils (cakes) derived from oilseeds refer to the oil (cake) equivalent of the current production of the relevant oilseeds, while the data on trade in and stocks of oils (cakes) refer to the sum of trade in and stocks of oils and cakes plus the oil (cake) equivalent of oilseed trade and stocks.

2.  This section discusses expected developments in the production of oils and meals from all origins, which – in addition to products derived from the oil crops discussed in the previous section – include palm oil, marine oils and meals as well as animal fats.