Kuala Lumpur, May 8 - Global vegetable oil prices are likely to hold steady around current levels in 2008 despite higher production in key producing regions over the remainder of the year, according to a senior official at the Food and Agriculture Organization of the U.N.
"In the last two years, vegetable oil stocks were down to levels that require a considerable rise in production to boost supplies. It is happening but it's still not enough," Peter Thoenes, an economist in charge of oil crops at FAO's headquarters at Rome, said recently.
Thoenes told Dow Jones Newswires that the FAO is currently revising its supply-and-demand outlook for oilseeds and vegetable oils, and that an outlook report is likely to be issued by the end of this month.
In an earlier report, released late last year, the FAO forecast production of oils and fats from October 2007 to September 2008 would likely decrease for the second successive year, leading to further depleted stocks.
Global output of oilseeds was forecast to decline 3% on year mainly due to an expected shortfall in soybean output.
Weather has been favorable during the ongoing harvest of soybeans in South America, however, and higher intended plantings of soybeans in the U.S. is projected. Palm oil production is also on the rise in Southeast Asia.
"There has been some replenishment in of inventories but it is only partial...not full. Prices may continue to be volatile," Thoenes said.
Brazil's soybean output this year is expected to be around 61.8 million tons, up from 58.4 million tons in 2007, he said. Malaysia's palm oil output is likely to jump to 17.3 million tons in 2008, from 15.8 million tons in 2007, and Indonesia's palm oil production is expected to rise to 18.8 million tons from 16.8 million tons. Thoenes cautioned that these are only provisional indications and FAO's official estimates are yet to be finalized.
He said the high production cycle for palm oil seems to be continuing and increased acreage, particularly in Indonesia, can help compensate for any unforeseen adverse weather conditions in the near future.
"Area in Indonesia that was planted with oil palm three to four years ago is maturing now and will boost production," said Thoenes.
U.S. Soybean Crop Projections Tentative
The U.S Department of Agriculture has estimated intended soybean plantings in the U.S. at around 18% higher on year in 2008.
Thoenes said there are indications that soybean production in the U.S. may rise to around 83.5 million metric tons this year from 70.35 million tons in 2007.
"We are still compiling our estimates, but a lot will depend on weather conditions in the coming months," Thoenes said. The USDA's projections are tentative and impact on supply depends on actual realization, he said, adding that some analysts think the projections are too high.
Thoenes said corn may retain some of area that is currently forecast as likely to shift towards soybeans. The market has already responded to the high soybean acreage projections with slight softening of prices, he added.
Soyoil prices that jumped to record highs of around 70 cents per pound in early March are now trading around 57 cents/pound.
Crude palm oil prices that rose to an all-time high of MYR4,486 per ton in early March on Malaysia's derivatives exchange are now hovering around MYR3,400/ton after fluctuating between MYR3,000 and MYR3,700/ton last month. They were around MYR2,000/ton at the beginning of last year.
Thoenes said such volatility in vegetable oil prices may continue despite a bright outlook (so far) for palm oil production this year.
High Prices Fail To Cap Demand
Thoenes said high prices of vegetable oils have not damped demand in some countries, especially China, where demand for oilmeals remains particularly strong because of a robust livestock sector.
In India, the demand for oils and oilseeds may grow at a slower rate due to high prices, but is unlikely to fall.
"Demand may not grow as one could expect. There can only be a slowdown," he said.
A recent vegetable oil import tariff cut in India only signals tight supplies leading to further in international price hikes, he said. "There may be a limited downward impact on the domestic market, but exporters will react to it by raising prices."