- Despite lower demand growth, vegetable oil supplies will struggle to keep up with demand due to constraints relating to land, yields and weather. Prices are expected to remain high, which should bring about some demand destruction.
Rabobank has published a new report on supply and demand dynamics in the global vegetable oil sector, predicting that production of vegetable oil will increase by 23 million tons in the next five years, of which 15 million tons will go toward food use.
In the report, published by the bank’s Food & Agribusiness Research and Advisory group and titled “Finding the Food-Fuel Balance: Supply and Demand Dynamics in Global Vegetable Oil Markets”,
Rabobank points out that the global stocks-to-use ratio for vegetable oils is at its lowest level in 38 years, due to sustained growth in demand and weather shocks that set back a supply growth that was already barely keeping up.
Paula Savanti, Rabobank analyst and author of the report, says, “For the past decade, demand and supply for vegetable oils have been growing at about the same pace, 5% per year. However, production shortfalls in recent years have resulted in a draw-down of stocks that is unlikely to be reversed in the near future.”
Rabobank says that demand growth for vegetable oils for food use will continue to increase in the next five years, albeit at a decelerated rate of 2.6% per year due to weaker macroeconomics and high consumption levels reached in the past decade. Nevertheless, this implies an additional 15 million tons of oil used for food purposes by 2016.
Still, despite the lower demand growth, vegetable oil supplies will struggle to keep up with demand due to constraints relating to land, yields and weather. Prices are expected to remain high, which should bring about some demand destruction.
Savanti continued, “We expect vegetable oil production to increase by 3.3% annually for the next five years, which is lower than the 4.7% seen in the previous five years. Although production will continue to grow, in the medium term an adjustment will need to be made on the demand side for the market to find equilibrium. This suggests higher prices will be maintained. The growth pace of consumption for both food and fuel will slow relative to recent performance, but the greatest reduction will come from the biodiesel side.”