09/11/2005 (World Commodity Forecasts)

Oilseeds

With the completion of the northern hemisphere harvest, availability and usage of oilseeds for crushing has been running at a higher level than forecast, and the Economist Intelligence Unit has raised its estimate of global consumption in 2005/06 by 5m tonnes to 285.4m tonnes, or nearly 5% more than in 2004/05. As prices begin to recover from the lows of the previous two seasons, global consumption will start to revert to the trend growth rate of around 3%.

Exports of soybeans from the US have been hampered by the damage done to Gulf ports from recent hurricanes. However, September is not normally the busiest month for shipments, and the shortfall can be made good provided that further interruptions do not occur.

European crushers are displacing sunflowerseed with rapeseed

Spanish and other European crushers have been active buyers of sunflowerseed from Russia and Ukraine, and are expected to buy more from the US and Argentina during this season. However, the relatively poor crush margin on sunflowerseed is encouraging substitution by rapeseed. This is likely to continue: sunflowerseed crushing capacity in Russia and Ukraine has been increasing, squeezing export availability.

Edible oils

Global consumption of edible oils grew by a large 6m tonnes in 2004/05, stimulated by generally buoyant economic conditions and high demand for oils for fuel use. Responding to lower prices, consumption of vegetable oils in 2005/06 is expected to increase by around 5% to a total of 94.3m tonnesóan upward revision to our previous expectations of 1.7m tonnes.

Strong demand for palm oil from the energy and industrial sectors

There has been a big increase in rapeseed oil consumption for biodiesel use in the EU, but palm oil demand has also benefited from the high price of crude. Imports into the EU for industrial usesóincluding power generationóare growing more rapidly than for food use. Industrial use of palm oil in the EU in 2004/05 is estimated at 1.3m tonnes, of which around 1m tonnes was energy-related, and the EU now runner-up to China as the largest importer.

Rising US biodiesel capacity will help boost soybean oil demand in 2005/06

US biodiesel capacity is expected to increase in 2005/06 to around 1.5m tonnes. This is modest in relation to the EU, and to total US consumption, but will add to US soybean oil demand. With the US government now actively promoting biofuels as an alternative energy source, we expect soybean oil offtake to increase.

Palm oil imports are rising at the cost of soybean oil in South Asia

Indiaís demand for soybean oil will decline in 2005/06, partly in response to competition from palm oil. However, palm oil, in turn, faces competition from cooking oil imported from Sri Lanka and Nepal, which enters India duty-free. Elsewhere in Asia, demand for palm oil is rising. Imports into Bangladesh and the Philippines have shown notable increases, some of which has displaced imports of soybean oil.

China's imports of soybeans are booming

China's purchases of vegetable oilsóespecially of palm and soybean oilsóare reported to have picked up significantly. The world's top buyer of soybeans imported 19.5m tonnes in the first nine months of 2005ó39% more than in 2004. Domestic production of vegetable oils is expected to increase by only 500,000 tonnes, compared with annual increases in consumption of up to 2m tonnes, and soybean oil imports will comfortably exceed 2.1m tonnes in 2005/06, compared with 1.9m tonnes in 2004/05. We expect palm oil imports to increase by around 500,000 tonnes in 2005/06 to a new record of 4.8m tonnes. Given the difficulty that China has experienced in expanding domestic oilseed production, we expect imports to continue to rise.

Oil Meals

Chinaís consumption of oilmeal will also rise rapidly, and we have raised our estimate of usage in 2005/06. Demand growth remains strong elsewhere in South-east Asia, thanks to the growth of poultry and fish-farming. Avian influenza (bird flu), which reduced Asian demand in 2004, is not expected to be a significant factor in 2005/06. However, poultry production in China is expected to be small in 2006/07 as the risks associated with bird flu have encouraged some producers to switch to alternatives such as duck and geese production. Increased domestic production of other oilseed meals, principally rapeseed and cottonseed meal, along with efficiency gains in feeding regimes, will also tend to limit Chinese consumption in 2006/07.

Poultry farming boosts demand for oilmeals

Russian demand for oilmeals is growing rapidly as poultry farming increases, which has so far been unaffected by the outbreak of bird flu in Siberia. Usage of soybean is rising strongly in Brazil in response to the growth of poultry farming, but pig numbers are also increasing.

Sunflowerseed and rapeseed meals will dampen demand for EU soybean meal

By comparison, EU25 demand for oilmeals will show little growth in 2005/06, and increased supplies of sunflowerseed and rapeseed meals will reduce demand for soybean meal. However, some recovery in EU demand for soybean meal is forecast in 2006/07, given lower availability of competing protein feeds and continuing growth in pig and poultry farming. The latter in particular is growing among the new member states. Hog numbers, which appear to have reached the bottom of the cycle in 2005, are expected to recover.