14/2/06 (World Commodity Forecasts )

Oilseeds

Demand for oilseeds especially soybean in the last quarter of calendar 2005 was disappointing. Imports by China and the EU25, the two main importers, fell in response to lower crushing demand. Smaller reductions in Thailand and Japan were offset by slightly higher imports elsewhere in Asia. The fall in import demand has been particularly significant for US exporters struggling (unsuccessfully) to compete with Brazil and Argentina.

India's vegetable oil import duties have been reduced

In India, the government has taken further measures to promote domestic crushing of rapeseed. Rapeseed stocks in India remain unusually large, including those held in government agency stores. Toll crushing, which involves third-party processing, may help reduce stocks and compete with imported soybean and palm oils. Tariff values, on which vegetable oil import duties are calculated, have been lowered (only slightly, as the government is also keen to promote domestic oil production).

Growth continues to be driven by China

Elsewhere, import demand for rapeseed is expected to be higher in 2005/06 than in 2004/05. Much of the growth will again come from China, where soybean crushing is predicted to reach 32.5m tonnes in 2005/06--an increase of 1m tonnes. Much of this will come from Latin America. Bunge, the world's largest oilseed processor, is establishing two integrated Chinese soybean crushing and refining plants in the port city of Nanjing. Bunge will supply the plant from its facilities in North and Latin America.

Significantly higher import demand is also expected from the EU25, Mexico and Pakistan. Crushers with multi-seed facilities, for example in North Africa, could opt to crush rapeseed and export the oil to the EU25. Canada will be the main supplier of rapeseed to these markets.

Edible oils

The burgeoning biofuels industry continues to drive demand for rapeseed in the EU, where the rapeseed oil price reached a new high in the final quarter of 2005, attracting imports of oil and seed, initially from Romania, Russia and Ukraine. In the longer term, Australia and Canada will be the principal beneficiaries of increased demand for rapeseed oil, since EU crushing capacity is limited.

New EU biodiesel production capacity is expected in 2006

New biodiesel production capacity will come on stream in the EU in 2006, helping to maintain demand. Rapeseed oil accounts for some 85% of biofuel production, but alternative feedstocks such as palm oil and derivatives are being examined.

Chinese import demand for vegetable oils will continue to rise

China's import needs for vegetable oils will continue to increase. Domestic production will rise in 2005/06, but fall short of growth in consumption, and imports are likely to rise to around 8m tonnes this season, followed by a further increase in 2007/08.

Consumption of vegetable oils in India will also increase further in 2005/06, continuing the upward trend in per head and total consumption seen since 2002/03. However, a greater proportion is expected to come from domestic sources, and demand for imported vegetable oils will be lower in 2005/06 than 2004/05. Soybean and palm oil will be most affected.

US consumption of vegetable oils is rising slowly

Growth in US consumption of vegetable oils will be smaller than in other major markets. Steady growth in edible oil consumption will continue. Biofuels production is still too small to have much impact on total consumption, but is expected to grow in response to the rising price of crude.

Availability of suitable feedstocks will constrain biofuels production

In 2004/05 global usage of biofuels totalled an estimated 90,000 tonnes, an increase of 7.1% on the previous season. The availability of high oil-content oilseeds (rapeseed and sunflowerseed) is likely to constrain production in 2006/07, but the Economist Intelligence Unit has raised its forecast of global consumption in 2005/06 to 95,000 tonnes--an increase of 5.6%--followed by slower growth in 2006/07.

Oilmeals

US production of beef, pork and poultry in November 2005 was running higher than in 2005 by 4.4%, and we have raised our estimate of US soybean meal consumption to 31.1m tonnes. However, the number of pigs kept for breeding has flatlined, and the growth in consumption expected in 2005/06 will not be repeated in 2006/07. Our estimates allow for only a small (less than 1%) increase in US soybean meal consumption in 2006/07.

As fears of bird flu recede, poultry output should rise in China

In China, demand for soybean meal has apparently picked up as fears of further outbreaks of avian influenza (or bird flu) have receded. Resumption in the growth of poultry production should greatly boost soybean meal demand over the next few years. Fish farming is expected to continue to increase, adding further to demand. There have been reports of larger Indian soybean meal purchases as well as increased buying of US soybeans for local crushing. We expect the 10% increase in Chinese soybean meal consumption in 2004/05 to continue in 2005/06.

EU consumption of oilmeals will continue to increase in 2005/06, when soybean meal will be displaced by increased availability of rapeseed and sunflowerseed meals. The 2% growth in EU soybean meal consumption currently forecast is below the global growth rate of 4.3%.

Healthy growth in global consumption of soybean meal is expected

We expect growth in global consumption of soybean meal to continue to slow in 2005/06 and 2006/07, followed by some revival in 2007/08.