The Hindu Business Line : Global vegoil market likely to be steady

FOR 2005-06, the global output of major oilseeds is placed at a new high of 385.3 million tonnes (mt)(up 6 mtfrom the previous year) and production of vegetable oils at a record 114.4 mt(up 4 mt), according to the latest assessment by the US Department of Agriculture (USDA).

World soyabean output for the year is projected at 221.6 mt, an increase from 213.3 mt of 2004-05, despite a decline faced by the world's largest producer. Latest estimate of US soyabean crop is 82.8 mt(up 2 mt from last month) but below the previous year's record 85.0 mt.

The USDA has forecast Brazilian soyabean crop 1.5 mt lower at 58.5 mt,while for Argentina the crop size is 40.5 mt.Among other key numbers, world ending stocks of soyabean are projected at 46.7 mt, higher than 42.1 mt of 2004-05. Also, China's soyabean imports are projected at a record 27.5 mtversus 25.8 mtof last year.

Interestingly, world soyabean oil consumption is expected to rise 3 mt to a new high of 44 mt in 2005-06, primarily because of expectation of biodiesel production spurred by high crude prices. However, it is unclear whether high crude prices will lead to a genuine gasoline/diesel demand destruction. Many believe, with the recent easing of crude oil market, consumers will favour biodiesel less than earlier anticipated.

The latest USDA report probably puts to rest all speculation about any impending bull run in the global vegetable oil market. Notwithstanding higher use of vegetable oil (soyabean oil in the US and rapeseed oil in the EU) for biodiesel, there is no shortage of vegetable oil that can cause a major price spike.

Indeed, prospects for palm oil production and stocks in Malaysia are seen capping price increases. On current reckoning, bad weather in South America can become the only factor that can potentially lead to a strong price upheaval over the next two months.

Crude palm oil has been range-bound at Malaysia ringgit 1450-1500 a tonne, while soyabean oil has actually been weakening both in the US and in India because of arrival pressure. In the US, soyabean oil price is most unlikely to move beyond 26-27 cents a pound from the current range of 22-25 cents a pound in the event of a fresh lead creating an upside.

In India, the massive stock of rapeseed/mustard being nursed by the procurement agency, National Agricultural Cooperative Marketing Federation, needs to be disposed of in a manner that will maximise its utility while minimising the agency's cost. How soon the Government will decide on this issue remains a mystery.

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