The Hindu Business Line : Global oilseeds output for 2007-08 seen lower

Mumbai, Aug. 12 Global production of major oilseeds in 2007-08 is projected at 391 million tonnes (mt), down from previous years’ record 405 mt, according to the latest US Department Agriculture (USDA) compilation of world agricultural supply and demand estimate.

The decline can be attributed mainly to a fall in the US soyabean production which is slated to hit a recent low of 71.5 mt, from the previous years record 86.8 mt. Shift of acreage from soyabean to more remunerative corn (maize) and anticipated slightly lower yield is set to result in output loss of about 15 mt soyabean.

Consumption

Following reduction in the US, world soyabean production for 2007-08 is forecast at 221.6 mt versus 236 mt previous year. China, too, is set to face a decline of 1 mt to 15.2 mt. China’s soyabean imports are forecast to rise to a new high of 33.5 mt from 28.7 mt in 2006-07.

Imports are necessary to meet the burgeoning feed demand from the rapidly growing livestock industry in China. For 2007-08, USDA has forecast Brazil’s soyabean production at 61 mt (59 mt) and Argentina at 47 mt (unchanged). Planting of the crop is of course several months away. World vegetable oil production is forecast at 125.8 mt, up from 121.2 mt of 2006-07. In other words, an additional 4.6 mt would be available in 2007-08 as compared with an increase of 3.4 mt in 2006-07.

On the consumption side, USDA has forecast 125.9 mt for 2007-08 suggesting production and consumption will remain in more or less balance. Forecast consumption for 2007-08 represents an increase of 4.6 mt from the previous year.

Apparently, USDA expects a slowdown in consumption growth in 2007-08. From 115.1 mt in 2005-06, world vegetable oil consumption expanded to 121.2 mt the following year, representing an increase of 6.1 mt.

For the ensuing year, consumption growth is forecast lower at 4.6 mt which is equal to production increase forecast for the year.

Bull Run

Should these forecasts hold true, they will have implications for world vegetable oil prices which have had a bull run for over one year now. While diversion of vegoil for biodiesel production sucked out a significant quantum of oil that would otherwise have been available to the market in the normal course, the extraordinary price spurt was not justified by market fundamentals. Clearly speculators have had a field day in trading vegetable oils. Producers who hedged their price risk in a rising market (and thereby locked-in their profit) lost out an opportunity to reap windfall gains.

The sentiment may soon change if fundamentals caught up. Production and stock trends in Malaysia suggest a rise palm oil output and inventory levels. At continued higher prices, there is also some demand compression in price-sensitive markets such as India.

Crop Conditions

There is expectation that the market will change direction sometime towards the end of August when crop conditions across the world become clearer than at present.

World vegoil prices have the potential to correct down by about 10 per cent from the current levels. Harvest pressure will be felt. According to USDA, world ending-stocks of vegoil would be 7.7 mt, down from 8.5 mt.

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