🔎 We're amid a global cooking oil shortage. All four major edible oils -- palm oil, soybean oil, sunflower oil, and canola oil -- are facing major shortages. Hear more about the case of canola oil in Canada, the largest producer of canola oil in the world.
🎙 Tridge's Global Market Analysts Bea Shim and Theo Venter discuss the situation.
📖 For more information on global wheat supplies, take a look at our Tridge Analysis.
💻 Want more agricultural insights? Get smarter and stay updated on the most important agricultural updates on https://www.tridge.com/intelligence-data.
0:00 Hey, this is Free on Board a podcast by Tridge.
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0:06 Let's get on with the updates
0:14 [Bea] As we've spoken for weeks now, the world is deep in a cooking oil crisis.
0:19 [Bea] The four major cooking oil markets, palm oil, sunflower oil, soybean oil, and canola oil have both separately and in many connected ways, been toiling to secure enough supply.
0:30 [Bea] Among the four major cooking oils, we're taking a deeper look into canola oil today to give a brief overview of the current landscape,
0:37 [Bea] Canada, the largest producer of Canola oil, experienced a 35% YoY decrease in Canola oil production.
0:44 [Bea] Theo Venter, a Global Market Analyst, is joining us today to help us understand the details.
0:49 [Bea] Before we start our deep dive here are some essential updates.
0:53 [Bea] On May 13th, India announced their ban on the export of wheat.
0:57 [Bea] This is amid a dire shortage of global wheat supply.
1:01 [Bea] After India's abrupt band of wheat exports, 5000 trucks with wheat headed to the Kandla report have been stranded for the last 10 to 15 days.
1:09 [Bea] Drewry's World Container Index decreased by 0.9% to USD 7657 which is a decrease, yet well above last year's rate
1:20 [Bea] US wheat futures are up 4.18%, Palm oil futures are down 7.66% compared to last week
1:28 [Bea] Now, onto our conversation with Theo.
1:37 [Bea] Hi, Theo, thanks for joining me today.
1:40 [Theo] Hi Bea, yeah, thanks for having me.I'm excited to be here.
1:43 [Bea] Happy to be here with you as well.
1:45 [Bea] So Theo, help me lay out the global vegetable oil market for our listeners.
1:49 [Bea] How bad is the situation?Is it as dismal as people make it to be?
1:54 [Theo] Well, I mean we hear a lot about the bad situation and the dismal situation, as you call it.
2:01 [Theo] I won't say it's a rosy picture. I think the main thing is that the whole cooking oil market is affected across all of the major oilseeds, so that includes, of course, sunflower oil, palm oil, soybean oil, and also canola oil.
2:19 [Theo] So the extent of the crisis is very wide, but I think maybe it's a little bit overhyped
2:27 [Theo] because if there's one good production season of soybeans or, you know, if Ukraine returns to the sunflower market next year, we could see a reversal.
2:40 [Theo] So if stocks can last for another year. You know, there's no need to totally panic yet.
2:47 [Theo] It's just because of the many products that have been influenced by the cooking oil crisis
2:54 [Bea] I see, has this been manifested in prices?
2:57 [Theo] So I said like the extent and like all these products have been influenced by what has happened over the last year.
3:04 [Theo] So obviously, the war in Ukraine COVID-19 and then the return or the opening up of many economies and strong demand for cooking oils as people go out
3:14 [Theo] and the food industry recovers and then also, you know, general inflation input costs, everything has different prices up and prices have risen across all of the major oilseeds.
3:27 [Theo] So if we take for example sunflowers, sunflower prices from a year ago are more than 40% up, Palm oil prices, 40% up.
3:34 [Theo] Soybean prices haven't increased that much in the US, it's up less than 10%.
3:39 [Theo] But that's because last year May, prices were already really high and then canola prices in Canada are up by about 30%.
3:47 [Theo] It's not one specific product, but all across the board.
3:50 [Bea] And I suppose this is compounded by the fact that Canadian farmers are turning more to wheat production instead of canola production.
3:56 [Theo] Yeah, so wheat and canola – they are in competition for planting areas in Canada.
4:06 [Theo] So if, you know, if Canadians decided to plant more wheat, they'll have to cut back on one of the other crops
4:13 [Theo] and it's mostly canola or if they plant more canola, they'll have to cut back on wheat production.
4:19 [Theo] So farmers have opted to go for wheat this season.
4:23 [Theo] So the area had to be planted under wheat could be up by 7%.
4:27 [Theo] Which means that the area to be planted under Canola is also expected to drop by 7%.
4:33 [Bea] This is because wheat production is more profitable for Canadian farmers than Canola, right?
4:37 [Theo] Yeah, that's right.
4:38 [Theo] If we take a look at wheat prices, wheat prices nearly doubled from a year ago.
4:42 [Theo] So it's about 90% up in the spot market.
4:45 [Theo] So, you know, it's 90% higher than last year, whereas Canola is about 30% higher.
4:51 [Theo] Yeah, it's more profitable for farmers to plant wheat at the moment in Canada.
4:55 [Bea] Right, and I would assume so since India banned the export of wheat as well.
4:59 [Bea] And although India is one of the world's top wheat exporters, this new ban could potentially drive global prices to new peaks and perhaps also support Canadian wheat prices.
5:08 [Theo] Yeah, it will definitely put some support worldwide wheat prices.
5:14 [Theo] you know, even though India is not a big exporter of wheat is the world's second-highest producer.
5:19 [Theo] So definitely wheat prices will find support from this.
5:23 [Bea] Yeah, in your analysis, you also wrote about Canada's plan to reduce planting area. Can you speak on the compounding effect this may have?.
5:31 [Theo] Yeah, so, first we have to recap the 2021-22 season.
5:37 [Theo] So, you know, Canada experienced the worst drought in, you know, in recent history,
5:41 [Theo] which meant that Canola yields dropped by at least 40% from the normal, from what it should have been.
5:51 [Theo] So Canola yields were only 1.4 metric tons per hectare, whereas, for the five preceding years, the average was 2.3-2.33.
6:00 [Theo] So, you know, it's a 40% drop from where it should have been.
6:05 [Theo] And that just meant for the whole season, you know, production was much lower than it should have been.
6:11 [Theo] Usually it's about 20 million tons.
6:13 [Theo] It dropped to about only 12.6.
6:16 [Theo] So, you know, at the end of the season, ending stocks were really tight.
6:20 [Theo] So the stocks-to-use ratio was only 3%.
6:23 [Theo] where it's usually, you know, well above 10-15%. So going into the 2022-23 season, opening stocks are really low.
6:35 [Theo] So less than 400,000 metric tons.
6:39 [Theo] And then production should rebound.
6:41[Theo] But with the lower production and with the lower area, so the area is 7% lower than last year.
6:48 [Theo] Yields should obviously be where they were in the five preceding years from last year.
6:57 [Theo] So, yield should be back to something like 2.3 metric tons a hectare.
7:02 [Theo] So, production is going to be about 20 million tons, even slightly less than 20 million tons.
7:09 [Theo] Now, domestically, Canada uses about 10 million tons of exports.
7:14 [Theo] Which, usually, they have a fixed market for exports is also about maybe 9.5 million metric tons.
7:21 [Theo] So, I mean, that's a very that's already very close to 20 million metric tons.
7:26 [Theo] You know, it's not like even with a bigger crop from last year that they're going to replenish stocks.
7:35 [Theo] So, the stocks-to-use ratio at the end of 2022-23, could actually be lower than last year, which was a drought year.
7:43 [Theo] Just because of the demand for oils and oilseeds.
7:46 [Bea] hmm I see, and looking into the future, I'm assuming that canola oil will remain in high demand for a while
7:51 [Bea] for the consumers that are listening, Theo, would there be any viable alternatives outside the oil market you can suggest?
7:58 [Theo] Well, I think in the past there was more a situation where if one oilseed price increased a lot that, users would just look for another kind of oil to replace it.
8:09 [Theo] So for example, if palm oil prices got really high consumers with sweets to soybean oil or if sunflower prices got really high, consumers would switch to canola oil.
8:20 [Theo] Now at the moment, like all these oil prices, all these cooking oil prices are really high.
8:26 [Theo] And you know, there's not really a cheap alternative to any of them.
8:30 [Theo] So, you know, we might see something where prices get really high for oil, you know, end consumers like you and you might just switch to two rice, which is boiled in water instead of something that's cooked in oil.
8:41 [Theo] Or, you know, one of our other Market Analysts wrote a tridge analysis recently that some of the end consumers in Europe are looking towards butter to replace margarine just because of the high prices of margarine.
8:56 [Theo] So instead of just looking for alternatives inside the cooking oil market and direct alternatives.
9:02 [Theo] End consumers might even be looking outside of the cooking oil market to other alternatives and changing their diets a little bit to suit their budget
9:11 [Bea] Well, definitely be on the lookout for butter and margarine as a substitute for your cooking oil.
9:17 [Bea] Thanks so much for being here with us today, Theo.
9:20 [Theo] thank you so much.
9:21 [Theo] It's always fun to talk about these markets and have a podcast with you.
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9:44 Check out tridge.com/intelligence-data for more price analyses and up-to-date insights into the food and agricultural industry.