13/04/2010 (Agrimoney) - Palm oil is to reopen a "large" discount to soyoil, as a rapid growth in output from top-ranked producer Indonesia floods the market with supplies, the US Department of Agriculture has said.

Global demand for vegetable oils will grow by some 4.5% to 143.6m tonnes in 2010-11, led by China, which will rely increasingly on foreign supplies to meet its surging use in food and animal feed.

China's vegetable oil imports will leap by 10% to 10.7m tonnes, giving it a clear lead over India which some analysts believe has taken top ranking in 2009-10.

However, production of vegetable oils will outpace global consumption, rising by 5.5% to exceed demand by some 3m tonnes, with palm oil accounting for nearly half the increase.

Soaring stocks
Although Malaysia, the second biggest palm oil producer, will report only a marginal increase in output - held back by labour shortages and a hangover of dry weather caused by the El Nino weather pattern - Indonesia's production will soar as it reaps the benefits of huge plantation expansions.

"Based on a rapid expansion in mature oil palm area, the country's production is forecast to rise 14% to 24.5m tonnes," which would represent a fresh record, the US Department of Agriculture said.

The extra supplies will take palm oil stocks to 6.2m tonnes as of the end of 2010-11, representing 47% of all vegetable oil inventories, a rise of seven percentage points in two years.

The increased stocks will weigh on palm oil prices, which have this year closed their historic discount of roughly $100 a tonne to soyoil.

"Large price discounts for palm oil relative to soybean oil will likely reappear again," the USDA said, in follow-up comments to Tuesday's key report on global crop supply and demand.

Palm oil vs soyoil
Palm oil's popularity has been spurred by its historic discount to soyoil, and its production in Asian countries from which shipping to China and India is cheaper than the soy giants.

Well over half world's soyoil, and 80% of soybeans, are produced in the US and South America.

Soyoil is, however, more popular as a source of biofuels, thanks to its greater resilience to freezing temperatures.

Its use in the US for making biodiesel will jump by nearly one-third next season, the USDA said.

However, speculators have been less convinced over soyoil's use in biodiesel, given the ditching of a tax credit for blenders, with their short positions overtaking long positions, regulatory data last week showed.