Vegetable oil prices soar

by Ron Sterk
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A multitude of market factors in addition to surging demand for more healthful oils have resulted in tight supplies and record high prices for no trans as well as other vegetable oils.

"The whole issue of trans fats raised the price of oils that meet those requirements and left little ‘wiggle room’ for the types of oils that could be used," said Robert Lindon, executive vice-president of Naperville, Ill., based Connell Spend Management, a division of the Connell Co. "I believe it certainly impacts oil markets."

A shift was made to sunflowerseed oil, corn oil and some cottonseed oil to meet no trans fat requirements, and "those oils led the way up," Mr. Lindon said.

Prices for the three primary no trans oils — corn oil, sunflowerseed oil and cottonseed oil — as well as other vegetable oils, began climbing in the 2006-07 marketing year (October-September), soared to record highs in the current year and are expected to maintain at lofty levels in 2008-09. Demand for no trans fat oils has been especially strong, even if production has been inconsistent.

While corn remains easily the largest crop in planted area and production in the United States, corn oil has remained largely in the background despite the rise in demand as a no trans fat oil and sharply higher price.

Domestic demand for corn oil is growing faster than production, the U.S.D.A. said, with domestic use up 10% in 2006-07 from 2005-06. Corn oil exports, meanwhile, have been declining for about a decade, according to U.S.D.A. data.

"Higher prices were largely a function of the strengthening demand for corn oil, as output is still a byproduct (and not the main objective) of corn refining," the U.S.D.A. said.

Corn oil prices averaged 23.8c a lb from 1997-98 through 2005-06. Values increased 26% to 31.8c in 2006-07 from a year earlier and are expected to more than double to 76.5c in 2007-08 before easing slightly to 72@76c in 2008-09, the U.S.D.A. said in its latest Oil Crops Outlook.

Sunflowerseed oil rises

"The market for sunflowerseed oil has changed greatly from a decade ago, when most U.S. supplies were exported," the U.S.D.A. said in its latest Oil Crops Year in Review. "The U.S. demand for oils that are free of trans fat, such as mid-oleic sunflowerseed oil, has grown rapidly in recent years. A reflection of that trend was the surge in domestic consumption of sunflowerseed oil in 2006-07 to a record 605 million lbs."

Most sunflowerseed oil was consumed domestically in 2006-07, with exports at 170 million lbs compared with 500 million to 800 million annually in the 1990s. "Imports of sunflowerseed oil, principally from Argentina, also supplemented domestic supply," the U.S.D.A. said.

Sunflowerseed oil prices have been second only to peanut oil values in the current year. Prices averaged 28.2c a lb from 1997-98 through 2005-06, climbed 43%, to 58c, in 2006-07 from the previous year, and soared to 92.5c in the current year, according to the U.S.D.A. Average prices are projected to range from 92@96c in 2008-09, the U.S.D.A. said.

A major U.S. snack producer that once exclusively used sunflowerseed oil, and was said to have "locked up" the entire U.S. supply, has since changed its label, indicating other no trans oils also are being used, trade sources said.

Plantings for all types of sunflowerseed were indicated at 2.2 million acres in 2008, up 4% from 2007, the U.S.D.A. said in its March Prospective Plantings report.

Although much in demand as a no trans fat oil, cottonseed oil outturn remains mainly a function of cotton production, which is influenced by both non-food factors as well as by competing for acreage with food and feed crops, such as corn and soybeans. Area planted to cotton in 2008 was indicated at 9.4 million acres, down 13% from 2007, the U.S.D.A. said.

"Domestic consumption of cottonseed oil fell 18% in 2006-07 because of lower output and a doubling of export demand," the U.S.D.A. said in its Oil Crops Review.

Cottonseed oil prices averaged 23.3c a lb in the nine years prior to 2006-07, when it rose to 35.7c. Prices surged to 75.5c, or 111%, in 2007-08 and are expected to hold near that level next year, the U.S.D.A. said.

Recent market conditions, including weather delayed planting and flooding in parts of the United States, increasing demand from biodiesel manufacturers, soaring demand in China and India and the farmers’ strike that limited exports from Argentina, have driven prices higher for vegetable oils in general, Mr. Lindon said. China is the world’s largest consumer of soybean oil and palm oil, according to the U.S.D.A.

Additionally, record high and volatile crude oil prices have affected vegetable oil prices as increased volumes of soybean oil in the United States, rapeseed oil in Europe and palm oil in Asia are used in the manufacture of biodiesel.

Soybean oil stays high

Despite its shunning by segments of the food industry because of trans fat labeling requirements, soybean oil remains by far the largest vegetable oil produced and consumed in the world. Futures prices for soybean oil traded at the Chicago Board of Trade remain historically high although off their highs of over 70c a lb set in late February and early March. Last week prices at the exchange ranged from 64@68c a lb.

The switch from soybean oil to no trans fat oils has had an impact on soybean oil demand, according to U.S.D.A. and Census Bureau data. Total soybean oil use has increased, but nonfuel use, reported by the U.S.D.A. at 15,801 million lbs in 2006-07, estimated at 15,600 million in 2007-08 and forecast at 15,400 million in 2008-09, has declined the past three years.

"Since new labeling requirements for trans fat were introduced in January 2006, more food companies and restaurants have eliminated them in their products by substituting other oils for soybean oil," the U.S.D.A. said in its Oil Crops Year in Review. "A growing number of cities have prohibited restaurants from using cooking oils that contain trans fat.

"Demand gains for soybean oil were led by domestic use, which surged to 18.7 billion lbs from 18 billion in 2005-06," the U.S.D.A. said. "Of the domestic uses for soybean oil, biodiesel accounted for the year’s entire increase."

Soybean oil prices averaged 21.2c a lb from 1997-06, according to U.S.D.A. data. Despite a record large soybean crop in 2006, soybean oil prices in 2006-07 rose 33%, to 31c, from a year earlier due to "strengthening global demand for vegetable oils," the U.S.D.A. said.

Soybean oil exports also have been strong and are expected to reach a record 3,100 million lbs in 2007-08, according to the U.S.D.A.

Strong demand from China and India, as well as a disruption in exports from Argentina, the world’s largest soybean oil exporter, due to a prolonged farmers’ strike, has boosted foreign demand for U.S. soybean oil, Mr. Lindon said.

Despite an expected significant increase in U.S. soybean plantings this year, soybean oil supplies are forecast to tighten in 2008-09 due mainly to smaller beginning stocks, the U.S.D.A. said. Total use also is forecast to decline as the result of reduced exports.

In its March 31 Prospective Plantings report, the U.S.D.A. said farmers intend to plant 74.8 million acres of soybeans in 2008, up 18% from 2007. But delayed plantings due to a cool, wet spring and loss of area due to current flooding in the Midwest are expected to slash intended soybean area. Soybean plantings as of June 15 were only 84% completed, well behind 94% as the 2003-07 average for the date, and emergence was at 71%, also far behind the 86% average, the U.S.D.A. said.

Prices for canola oil and peanut oil also have soared. Canola oil averaged 40.6c a lb in 2006-07, up 31% from a year earlier, and are expected to average 68c in 2007-08. Prices for peanut oil averaged 53c a lb in 2006-07 and $1 in 2007-08, according to the U.S.D.A. Prices for both in 2008-09 are forecast to hold at similar levels to those of the current year, the U.S.D.A. said.

Consumption of canola oil increased 5% in 2006-07, in part as the result of Food and Drug Administration action that allowed labels on bottled canola oil and foods that used it as the primary oil to state that its "substitution for saturated fats may reduce the risk of coronary heart disease," the U.S.D.A. said.

Growth in palm oil production is expected to slow in 2008-09 while demand, including use for biodiesel, is seen increasing more than production, the U.S.D.A. said.

U.S. planting numbers will be updated in the June 30 U.S.D.A. Acreage report.

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