Demand for vegetable oil at historic levels, income gains to remain strong

7/8/2006 (Agriculture Online)   - The increasing global appetite for biodiesel and other biofuels is driving demand for vegetable oils to historic levels in world markets, leading to higher prices for vegetable oil relative to meal and causing soybean crushers to reevaluate their business models.

The confluence of environmental concerns, high energy prices and government incentives that is fueling demand growth is also driving expansion on the supply side, leading to significant increases in oilseed processing capacity.

Speaking at a recent conference on biodiesel and canola in Alberta, Canada, Alejandro Reca, Ph.D, Executive Director of Rabobank's Food and Agribusiness Research group in the Americas, discussed the dynamics driving the strong demand for biodiesel and predicted that the recent income gains in the global vegetable oil sector would be sustained over the long term.

Worldwide use of vegetable oils is expected to post growth of approximately 5.5% CAGR between 2005 and 2010, a significant departure from historical rates, reflecting the newly expanded biodiesel application.

"Biodiesel is proving to be a significant demand shifter in the overall vegetable oil industry," Reca said, "but the canola and palm sectors will benefit more proportionally from this growth, thanks to their high oil content and the oils' multiple uses as food and foodstock."

Reca also predicted that recent income gains in the global vegetable oil industry would remain strong, since food consumption of vegetable oils should mitigate any potential decline in non-food uses of vegetable oil.

He noted, however, the variance between lower prices for vegetable meals and higher prices for vegetable oils, as well as the increasing competition from distillers grains, was causing many soybean crushers to rethink their traditional business models.

"The tremendous opportunities presented by biodiesel today are attracting non-traditional investors to the agribusiness sector, such as financial institutions and private equity firms, as well as traditional energy and agribusiness players," Reca said. "The result is that our energy and agricultural markets are becoming increasingly interrelated."