25/12/2007 (The Hindu Business Line), Mumbai - The new year is unlikely to bring any respite from high prices of vegetable oil. If anything, the upside risk to prices even from the current strong levels is high. Developments in the US, world’s largest producer of soyabean, will be keenly watched.

Not only current crush demand and seasons ending stocks, but also competition for acreage (crop to be planted in April 2008), weather conditions, crop size and quality prospects are all expected to play a significant role in nearby and forward impacting prices.

With final 2007 crop numbers almost nearly known (but for some small adjustments that USDA may make in its January 2008 report), market participants have indeed begun to look at 2008 crop planting prospect.

Advantage wheat
In 2007, because wheat rallied the maximum followed by soyabean and to a less extent by corn, it is widely expected that in 2008 US planting, wheat may win a larger acreage followed by soyabean, and at a distance by corn.

This is the current expectation. This can change over the coming months. Crop rotation considerations and cost of inputs may force some land to shift from corn to soyabean.

Last week, soyabean rallied to new contract highs led by new-crop soyabean on the fight for acreage with corn (maize) in the US. Corn prices rallied to reach their highest levels since July 1996. This rally is really an indication of the fight between the two crops for acreage in the US. Markets of the two crops seem to be feeding on each other and causing a price spiral.

Taking a cue from rising bean prices, both soyameal and soyaoil too spiked last week amid the outlook for tight supplies and robust demand for meal, especially from China.

Market rally
Soyabean oil did not lag behind. Three factors that influenced the market were threat to palm oil supplies due to heavy rains in Malaysia, considerations of new crop prospects in the US and importantly, Energy Independence and Security Act of 2007 that the US President George W Bush signed into law.

The law affirms State support to renewable energy. Given this scenario, experts are of the firm view that the end of vegetable oil market rally would not be anytime soon. Currently, soyabean oil is offered at $1,120 a tonne CIF India. Depending, among other things, on how the fight for acreage between soyabean and corn pans out, soyabean oil prices have the potential to rise further.

Developments in South America also need to be watched, especially for clues on yields. Soya and palm oil are likely to feed on each other. Given India’s own less-than-satisfactory prospects for the Rabi season, it is going to be tough job for the Government to control edible oil prices in the coming months.

Duties reduction
New Delhi may be forced to further reduce customs duties on various oils. Until about two years ago, whenever India reduced customs duty on palm oil, the overseas market went up. Indian consumers were usually denied the benefit of duty reduction. But now, palm oil prices are largely on their own; much less dependent on Indian demand.

Bio-diesel sector is keeping the palm market on the boil. It is, therefore, more likely that under the current circumstances, a duty reduction across the board on all oils would bring real relief to beleaguered consumers here.