Large crops are still weighing on the world’s oilseeds market, and there’s an added bearish feature with a fall in the price of oil, driven lower by concerns about the world’s economy and high U.S. inventories.
As of May 19, the price of crude had fallen by 17% in two weeks, touching a three-month low of $70 a barrel. The fall directly affected palm oil in Malaysia, which, according to Bloomberg, was down by 8.2% since the start of the year.
Behind it all, there’s a record crop. In its most recent World Agricultural Supply and Demand Estimates report, the U.S. Department of Agriculture (USDA) projected global oilseed production for 2010-11 at a record 440 million tonnes, a rise of 2.2 million from 2009-10.
The USDA projects world soybean production in 2010-11 at 250.13 million tonnes, down from 258 million, with U.S. production at 90.08 million tonnes, down from 91.42 million.
It puts Argentina’s 2010-11 soybean production at 50 million tonnes, down from 54 million. "Soybean area is projected lower as producers are expected to increase grain and sunflower seed plantings," the report said. In its annual report on the sector, the USDA office in Buenos Aires, which agrees with the WASDE crop figure, noted that "the drop in 2010-11 soybean planted area is expected mainly due to higher corn planted area, an increase in sunflower planted area and a slowdown of cattle pasture being converted into agricultural land."
"Farmers’ good experience with corn (maize) in the current crop, combined with expectations of good moisture for next year’s planting due to recharged soil moisture — and the need to rotate fields that have been in soybeans for several seasons — will likely lead to higher corn area in 2010-11," it says.
Brazil’s 2010-11 soybean production is projected at 65 million tonnes, down from 68 million. "A small increase in harvested area is more than offset by lower yields following record yields set for 2009-10," according to the WASDE report.
However, there are others who take a more bearish view of Brazilian soybean production. In an attaché report published last month, USDA officials in Brazil predicted a record 67.5-million-tonne crop based on a return to historical record area at 23.3 million hectares. "Soybeans maintain a lower relative production cost and greater liquidity compared to alternative crops," the report said.
The Brazilian oilseeds industry body, ABIOVE, also takes a more bearish view. It puts the 2010-11 crop at 67.95 million tonnes, compared with its figure for 2009-10 of 57.383 million.
In its most recent Oilseeds Outlook, the USDA’s Economic Research Service noted the pressure on Brazilian prices. "The outlook for ample global supplies is already starting to pressure soybean prices, which in April fell to a three-year low," it said. "The country’s robust economic growth is also strengthening its exchange rate, further reducing the value of exported commodities like soybeans. Given the high costs of transportation in Brazil, any decline in domestic soybean values can squeeze farm profits."
The USDA’s WASDE report also projected China’s 2010-11 soybean production at 15.2 million tonnes, up 700,000 from 2009-10 because of higher area and yields. It projects a rise of 5% in global production of high-oil content seeds (sunflower seed and rapeseed) mostly because of increased area. "Despite only small gains in global oilseed production, 2010-11 oilseed supplies are up 4% as beginning stocks are 19 million tonnes higher than a year ago," it noted. "Most of the increase is for soybeans in South America."
In response to NGO accusations that palm oil consumption has caused deforestation, giant food company Nestlé has already set a goal that by 2015 100% of the palm oil it uses will come from sustainable sources.
"Palm oil is not a major raw material for our products.Actually Nestlé only buys 0.7% of the worldwide palm oil production," José Lopez, executive vice-president, Nestlé SA, told an open forum on deforestation in Kuala Lumpur. "Nevertheless, we are conscious of our responsibility in contributing to effective and sustainable solutions."
Chris Lyddon is World Grain’s European editor. He may be contacted at