Why veg oil is hot

G Chandrashekhar | Updated on March 12, 2018



Lower soyabean and groundnut output pushes prices higher

India’s two key kharif oilseed crops — groundnut and soyabean — are set to see a decline in output on the back of lower acreage and the erratic progress of the south-west monsoon. While the soyabean harvest is set to fall by about 10 per cent from last kharif’s 120 lakh tonnes, the groundnut harvest runs the risk of taking a much bigger hit. The decline could be as much as 50 per cent from the previous kharif’s record 78 lakh tonnes. The country’s groundnut bowl Saurashtra has faced extended dry conditions this season.

Even assuming a normal rabi crop will be harvested in March next year, the lower kharif harvest raises the spectre of lower vegetable oil production during 2014-15 and a higher reliance on imports. Soft global prices may, of course, come to India’s rescue.

Although acreage under oilseeds as of September 12 was estimated as ‘normal’ at 175 lakh hectares, it is 17 lakh hectares below the acreage during 2013 kharif season. Soybean acreage is down from the previous year by 12 lakh hectares and groundnut by 7 lakh hectares.

Erratic and inadequate rainfall is widely expected to adversely affect yields too. They are, even otherwise, relatively low at around 1,000 kg a hectare. During kharif 2013, from a planted area of 122 lakh hectares, soyabean harvest was only 120 lakh tonnes. This is likely to fall even lower this year, possibly closer to 100 lakh tonnes.

The implications are inescapable. Lower raw material (oilseeds) availability for the domestic processing industry may lead to lower production of indigenous oilmeals and oils. This will tighten the availability of oilcake and oilmeal for animal feed and also mean higher dependence on imported oil to meet the shortfall. As the south-west monsoon begins to withdraw and there is little prospect of extended precipitation in October, subsoil moisture conditions are unlikely to be good for rabi oilseeds, notably rapeseed/mustard and groundnut.

Global glut

Fortunately for the country, there is a glut in the global vegoil market and prices are likely to stay softer over the next two quarters at the least.

The US is currently harvesting a record soyabean crop (105 million tonnes), there is large inventory in South America (Brazil, Argentina) and palm oil production is peaking seasonally. Malaysian palm oil stocks have crossed the psychological mark of 2 million tonnes, putting pressure on market prices.

Crude palm oil is currently trading at around 2000-2100 Malaysian ringgit a tonne or about $ 650 a tonne.

The premium other oils enjoy has also narrowed to less than $100/tonne, which means palm oil may not be consumers’ first choice.

The upside risk to palm oil prices is rather limited and the current rates may hold for about six months, given the current market fundamentals.

Given this situation, while the domestic vegetable oil refining industry will have an opportunity to raise capacity utilisation, the friction between meal suppliers and feed users can intensify. It may come as no surprise if the policymakers begin to take precipitate action to augment availability and contain price rise by using trade, tariff and administrative instruments.

In order to advance consumer interest, it may be time the Central government started to supply edible oil under the public distribution system, a welfare step it unfortunately discontinued 12 years ago.

Published on September 28, 2014

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