16/03/2010 (Bloomberg) - Prices of vegetable oils must rise to encourage farmers to boost planting and meet surging global demand for food and biofuels, Godrej International Ltd. said.

“I believe oilseeds and grains have been left behind in comparison with metals or energy,” Dorab Mistry, a director at Godrej, said in remarks prepared for delivery in Palm Springs, California yesterday. “We shall have to look to higher prices in the future to attract acreage to oilseeds and to palm. Consumers will have to get used to paying higher prices.”

Increasing demand for palm oil, the most consumed vegetable oil, and limits to output expansion may help extend last year’s 57 percent advance in prices. Palm oil may climb as high as 3,200 ringgit ($962) a metric ton in the second half as El Nino parches crops in Malaysia and Indonesia, Mistry said March 9.

“The market pricing mechanism will work to induce that additional supply, if demand looks to be outstripping it,” Toby Hassall, a research analyst at CWA Global Markets Pty said by phone from Sydney today. “We have seen strong demand growth for oilseeds and China has played a big role in that.”

World consumption of 17 vegetable oils and fats jumped 42 percent to 160 million metric tons in 2008 from 2000, while output gained 39 percent to 160 million tons, Mistry said.

Demand will keep rising as 80 million people are added to the global population each year and per capita consumption rises in countries including China, India, Bangladesh, Pakistan and Indonesia, he said.

Rising Incomes
“Their economies are growing fast and living standards of their populations, almost 3 billion people, are rising fast,” Mistry said. “That is likely to keep consumption growing.”

The average per capita consumption of vegetable oils has risen to 23.69 kilograms in 2008 from 11.42 kilograms in 1976, Mistry said.

“The price of vegetable oils will have to rise,” Mistry said. “The link with energy in the form of biodiesel will help that process. Biofuels are a bridge between low-priced agricultural products and high-priced energies,” he said.

A bushel of corn could be bought “with one barrel of crude in 1970,” Mistry said, while in 2008 “you could buy 27 bushels of corn with that same barrel of oil. So, either ags have got too cheap or energies and metals have got too expensive.”

Palm oil dropped for the third day to the lowest level in more than two weeks yesterday, losing 2.2 percent to 2,590 ringgit a ton on the Malaysia Derivatives Exchange.

Trading of dollar-denominated contracts in Kuala Lumpur, a tie-up between CME Group Inc. and Bursa Malaysia set to start in May, may increase liquidity in the market, allowing investors in North America more access to palm oil, which has the biggest share of the global vegetable oils trade, Mistry said.

Breakneck Expansion
The combined share of palm oil and palm kernel oil in total vegetable oils and fats production jumped to 31 percent in 2008, from 7.3 percent in 1976, he said.

Global palm oil shipments will be 35.52 million tons this year, 61 percent of the 57 million-ton global exports of 10 vegetable oils tracked by the U.S. Department of Agriculture.

Palm oil production growth may slow on limits to acreage in Indonesia and Malaysia, the world’s two largest producers and exporters, Mistry said. Indonesia and Malaysia account for 87 percent of output, according to USDA data.

“Production in Malaysia can be expanded by improvement in productivity only,” he said. In Indonesia, the world’s biggest producer, “most of the increase in production came from expansion of acreage. This breakneck expansion is now coming to an end.”

Higher palm oil prices will encourage improvements in productivity, more replanting of higher-yielding varieties and better management of plantation estates, Mistry said.

“Consumers have to pay higher prices to ensure sufficient expansion of supply,” he said.

May-delivery palm oil fell as much as 0.9 percent to 2,566 ringgit a ton, the lowest price since Feb. 12.

Malaysia will produce about 17.2 million tons of palm oil this year, Mistry said, lower than the record 17.8 million tons forecast by the country’s Finance Ministry in October. Bernard Dompok, the plantation industries and commodities minister, said March 9 production would be 18.1 million tons. He said last July that 2010 output may drop as much as 16 percent due to El Nino.

“Some were speculating that we may get worse than expected El Nino effect,” OCBC’s Wong said today. “Maybe speculation and what is on the ground is a little bit different.”

Consumers Must ‘Get Used to’ Higher Oilseed Prices, Mistry Says

March 16 (Bloomberg) - Prices of vegetable oils must rise to encourage farmers to boost planting and meet surging global demand for food and biofuels, Godrej International Ltd. said.

“I believe oilseeds and grains have been left behind in comparison with metals or energy,” Dorab Mistry, a director at Godrej, said in remarks prepared for delivery in Palm Springs, California yesterday. “We shall have to look to higher prices in the future to attract acreage to oilseeds and to palm. Consumers will have to get used to paying higher prices.”

Increasing demand for palm oil, the most consumed vegetable oil, and limits to output expansion may help extend last year’s 57 percent advance in prices. Palm oil may climb as high as 3,200 ringgit ($962) a metric ton in the second half as El Nino parches crops in Malaysia and Indonesia, Mistry said March 9.

“The market pricing mechanism will work to induce that additional supply, if demand looks to be outstripping it,” Toby Hassall, a research analyst at CWA Global Markets Pty said by phone from Sydney today. “We have seen strong demand growth for oilseeds and China has played a big role in that.”

World consumption of 17 vegetable oils and fats jumped 42 percent to 160 million metric tons in 2008 from 2000, while output gained 39 percent to 160 million tons, Mistry said.

Demand will keep rising as 80 million people are added to the global population each year and per capita consumption rises in countries including China, India, Bangladesh, Pakistan and Indonesia, he said.

Rising Incomes
“Their economies are growing fast and living standards of their populations, almost 3 billion people, are rising fast,” Mistry said. “That is likely to keep consumption growing.”

The average per capita consumption of vegetable oils has risen to 23.69 kilograms in 2008 from 11.42 kilograms in 1976, Mistry said.

“The price of vegetable oils will have to rise,” Mistry said. “The link with energy in the form of biodiesel will help that process. Biofuels are a bridge between low-priced agricultural products and high-priced energies,” he said.

A bushel of corn could be bought “with one barrel of crude in 1970,” Mistry said, while in 2008 “you could buy 27 bushels of corn with that same barrel of oil. So, either ags have got too cheap or energies and metals have got too expensive.”

Palm oil dropped for the third day to the lowest level in more than two weeks yesterday, losing 2.2 percent to 2,590 ringgit a ton on the Malaysia Derivatives Exchange.

Trading of dollar-denominated contracts in Kuala Lumpur, a tie-up between CME Group Inc. and Bursa Malaysia set to start in May, may increase liquidity in the market, allowing investors in North America more access to palm oil, which has the biggest share of the global vegetable oils trade, Mistry said.

Breakneck Expansion
The combined share of palm oil and palm kernel oil in total vegetable oils and fats production jumped to 31 percent in 2008, from 7.3 percent in 1976, he said.

Global palm oil shipments will be 35.52 million tons this year, 61 percent of the 57 million-ton global exports of 10 vegetable oils tracked by the U.S. Department of Agriculture.

Palm oil production growth may slow on limits to acreage in Indonesia and Malaysia, the world’s two largest producers and exporters, Mistry said. Indonesia and Malaysia account for 87 percent of output, according to USDA data.

“Production in Malaysia can be expanded by improvement in productivity only,” he said. In Indonesia, the world’s biggest producer, “most of the increase in production came from expansion of acreage. This breakneck expansion is now coming to an end.”

Higher palm oil prices will encourage improvements in productivity, more replanting of higher-yielding varieties and better management of plantation estates, Mistry said.

“Consumers have to pay higher prices to ensure sufficient expansion of supply,” he said.

May-delivery palm oil fell as much as 0.9 percent to 2,566 ringgit a ton, the lowest price since Feb. 12.

Malaysia will produce about 17.2 million tons of palm oil this year, Mistry said, lower than the record 17.8 million tons forecast by the country’s Finance Ministry in October. Bernard Dompok, the plantation industries and commodities minister, said March 9 production would be 18.1 million tons. He said last July that 2010 output may drop as much as 16 percent due to El Nino.

“Some were speculating that we may get worse than expected El Nino effect,” OCBC’s Wong said today. “Maybe speculation and what is on the ground is a little bit different.”