High Demand - Low Supply To Push Vegetable Oil Prices Upff

By atuna.com

The rising prices of vegetable oil, found in canned tuna, is a result of growing worldwide demand and a shrinking supply of crops, says an industry trader.

While the high prices were more influenced by outside markets last year, he says, the prices of edible oils - such as those from soybeans and sunflower seeds – are now being driven by the “fundamentals” of trading: supply and demand.

He says the global demand is increasing by 5% year-to year and that stems from both the biodiesel and food sectors.

Meanwhile, the dry weather in South America, which harvests half of the world’s soybean supply, is taking its toll on production – the global supply is expected to fall to a three-year-low of 242.1 million tons this year, according to the International Grains Council.

In order to compensate and to ensure a substantial yield, U.S. farmers need to plant at least 3 to 4 million extra acres of soybeans, said Dorab Mistry, director of Godrej International, in a paper presented at the 9th International Oils and Oilseeds Conference on March 27. However, on March 30, the United States Department of Agriculture (USDA) forecasted U.S. soybean farmers would plant an estimated 73.9 million acres in 2012, a 1% decrease from last year and a 5% decrease from 2010.

That prospective plan is “too low, too little” for normal balanced supply to the worldwide demand, says the industry trader.

“If there’s no balance, then the prices go up because in order to lose demand, you need to have higher prices,” he says.

Since mid-December, soybean oil prices have increased by 14% and sunflower oil prices have increased by 11%.

“It looks like we’re going to follow that trend and there’s no reason to believe that the markets are going to show a correction on the downside.”

According to Mistry’s outlook, sunflower oil will be the only vegetable oil in surplus and the strong demand from traditional markets such as Egypt, the Middle East, and Europe will continue if it remains at a discount to soybean oil.

Indian imports of sunflower seed oil are also expected to surpass the import of soybean oil, while China – the largest buyer of soybeans – is expected to increase its demand for sunflower seed oil too.