Uncertainty over Black Sea exports due to the war between Russia and Ukraine has led to prices from Argentina, a competitor, to jump 47 per cent for sunflower oil in less than two weeks between February 23 and March 8, according to the USDA (United States Department of Agriculture).
In its March report ‘Oilseeds: World Markets and Trade’, it said the Russia-Ukraine war, which began on February 24, has created uncertainty for oilseed and product exports, and has significantly impacted global markets.
USDA’s forecast for March represented an initial assessment of the short-term impacts as a result of Russia-Ukraine conflict.
It said sunflower oil prices have been on the rise since the situation in the Black Sea region deteriorated in late February. Sunflower seed oil prices in Argentina have soared and reached $2,250 a tonne as of March 8. In early February, sunflower seed oil was well-positioned to increase its share of global trade and consumption amid high premiums for rival oils. But it is now more expensive and less accessible than substitutes, the report said.
Due to the closure of port and crushing facilities in Ukraine, sunflower seed and product exports have been cut this month. The report said sunflower seed exports are down 57 per cent, oil exports are down 14 per cent, and meal exports are down 13 per cent as a result of this. This has led to Ukraine sunflower seed ending stocks going up nearly seven-fold in March to 1.9 million tonnes.
In Russia, export reductions are more muted with exporters facing uncertainties in Black Sea shipping routes and the impacts of sanctions. Russia exports are down 33 per cent for sunflower seed, 4 per cent for sunflower seed oil, and 3 per cent for sunflower seed meal, it said.
Uncertainty over Black Sea exports have led competing Argentina prices to jump 47 per cent for sunflower oil, and 27 per cent for sunflower meal in less than two weeks between February 23 and March 8, the report said.
According to the report, the share of Ukraine and Russia in the total global exports of sunflower seed oil was 47 per cent and 30 per cent, respectively, for the marketing year 2021-22. It also estimated India’s share in the global imports of sunflower oil at 22 per cent for the marketing year 2021-22.
Mentioning that the conflict in the Black Sea region has shut down sunflower oil exports from Ukraine and Russia, the report said this is particularly concerning for the largest importers of vegetable oils such as India and China as they rely on imported sunflower oil to meet domestic needs. Other importers of vegetable oils include the EU and countries such as Turkey, Iran and Egypt.
Finding alternatives, a tough task
The report said finding alternative vegetable oils will be a challenge in a market that has been facing tight supplies even before the events in Ukraine.
Drought in Canada last year significantly reduced rapeseed for crush and export. Likewise, drought in South America has reduced soyabean supplies by 14 million tonnes from last year and this is forecast to be the lowest harvest in six years, it said.
A similar situation exists with palm oil where supplies have been tight on lower production growth. Complicating matters are export restrictions imposed by Indonesia in order to reduce the impact of higher prices on its consumers.
Highlighting the global price trends of the last five weeks, the report said the drought in Canada last year has kept Canadian rapeseed at high levels over the past six months while the shortfall in South America soyabean production contributed to the rise in soyabean and palm oil prices in February.
Meanwhile, Warren Patterson, Head of Commodities Strategy, ING Think, said in his analysis that the vegetable oil market could potentially see increased substitution if disruptions persist. Although the issues with Ukrainian and Russian supply are coming at a time when there is already tightness in some of the other markets, including palm oil.
Hinting at the substitution to soyabean oil, he said India, world’s largest importer of vegetable oils, has already witnessed this trend due to tightness in the palm oil market. This trend is likely to strengthen, given the potential disruptions from Ukraine and Russia in sunflower oil now, he said.
“If we see a prolonged disruption in supply from Ukraine and Russia, increased plantings from other producing countries may help, but clearly will not offset the full potential losses from these Black Sea producers. Under such a scenario, global balances will tighten, providing support to prices. However, for now expect markets to remain volatile,” he said.