Global oilseed production estimates have been lowered by at least one million tonnes (mt) on fears of palm kernel, cottonseed, rapeseed and sunflower seed output being affected. However, overall oilseed production during the current season (November 2022-October 2023) is projected to be over six per higher than last season.

According to the US Department of Agriculture (USDA), oilseed production will be higher mainly in view of soyabean output being about 10 per cent higher this season at 391.17 mt against 355.61 mt a year ago. 

This will result in edible oil production rising by over 4 per cent to 217.55 mt against 208.95 mt a year ago.

B35 scheme

“Global edible oil supply this season is likely to be at least 7 mt higher with oilseed production projected to rise sharply by over 30 mt. Even if Indonesia diverts more palm oil for biodiesel by introducing B35 (biodiesel with 35 per cent palm content), there will be ample supply,” said BV Mehta, Executive Director of the Solvent Extractors Association of India. 

“Indonesia wants the B35 scheme to be successful and it is trying to balance between the higher biodiesel content and edible oil supply. Jakarta might resort to cutting the domestic market obligation (DMO) for local refiners,” said Pakistan-based edible oil analyst Abdul Hameed.

The USDA raised the oilseeds trade volume as it sees a higher export of sunflower seed exports from Ukraine this season. It has projected the trade at 198.27 mt compared with 178.01 mt last season. 

The higher availability of sunflower seeds will be another factor to drag soyabean prices, but palm oil might gain as a result.

“The price gap between soyabean and palm oil may narrow in the coming delays. Soyabean prices will decrease but palm oil can gain by at least $100 a tonne,” said Hameed. 

According to traders, a higher rabi oilseed production in India might be another factor. “This season, mustard production will be about or over 9.5 mt due to higher acreage and conducive weather,” said Amith Aggarwal, co-founder and CEO of AgriBazaar.  

“Indonesia has come up with B35 just to keep palm oil steady. We have to see how this will unfold. Raising the blending by 5 percentage points will not make much of an impact,” Mehta said. 

Hameed said Indonesia was lower the DMO and raising the diesel-palm oil blending limit since inventories with Jakarta could be lower. “The market thinks Indonesia might have 6-7 mt of palm oil stock. But I will not be surprised if it is half of that,” he said. 

Though palm oil production is stabilising, it may be slow in the first quarter of 2023. “Indonesia palm oil exports are expected to slow in the first quarter, though they might meet the festival season demand,” Hameed said. 

Price outlook

Mehta said edible oil prices could rule a tad lower in the first quarter and may be slightly higher in the second half. 

According to SEA, palm oil prices are currently at least $300 a tonne lower than the average 2021 December rates. On the other hand, prices of soyabean and sunflower oils are lower by less than $100. 

This is where, Hameed says, there is some room for palm oil to gain.   

“The sunflower oil outlook is bearish and it is now discounted at $80-100 a tonne to soyabean. The market looks bearish since Russia and Ukraine hold last year’s stocks and this year’s crop looks good,” he said. 

“Still, India will gain if it buys more palm oil, which is nearly $400 a tonne lower than soyabean and sunflower oils,” the Pakistan analyst said.