Bullish outlook for edible oils


Kunal Shah

The global edible oil market was supported by the Chinese appetite for oilseeds, edible oils and oilmeals in the previous crop year. Surplus production from the US and South America was absorbed without impacting prices significantly. This year, too, we believe the oilseeds market won’t be left to starve, as produce from Argentina and Brazil will keep markets well-supplied. China will also continue to buy a major chunk of the produce. The US Department of Agriculture (USDA)’s Attache Report stands proof that while China is likely to witness a record import of 84.5 million tonnes (mt) in 2016-17 due to rising incomes, urbanisation and the modernisation of the domestic feed and livestock sectors, its domestic oilseed production is set to decline to 52.7 mt.

However, the major oilseeds market in India doesn’t seem to paint a rosy picture. The production of rabi oilseed (rapeseed/mustard seed) seems to be higher than the previous year, but is below the average. At present, initial trade reports suggest a possible decline in the kharif oilseed acreage (which is likely to commence after the initial monsoon showers). Meanwhile, India’s foreign purchase of palm oil and its constituents have rendered the domestic edible oil market highly uncompetitive. The cheaper palm oil derivatives have flooded the domestic market and the trend continues. With France leading the EU to impose palm oil taxes, it is quite likely that the island nations will lose a major market, but Indian imports will continue to support prices. Indian oilseeds and edible oil demand is likely to outpace supply as in the previous year.

Soy complex: Soybean prices will witness a moderate uptrend in the near term, on account of decline in stockpiles and stable demand aided by festivals. However, exports of oil meals haven’t depicted a major recovery, which is a matter for worry. Soybean oil prices may find support due to the oil demand. We expect soybean to trade at around Rs 3,800- Rs 4,200 per tonne in the near term, and soybean oil to trade at around Rs 610-625 per 10 kg, in the near term. The upward trend may be capped by the rabi oilseed arrivals. Also, it is advised to trade keeping a check on the imports of soy oil from South America, which can lead to a correction in prices.

Rape-mustard seed: We estimate rapeseed production to be higher than the previous year at 5.9 mt this season. Fresh produce has started to hit the markets with prices trading at Rs 3,700-3,900 per tonne (spot market, Bharatpur). We expect the future prices to correct and trade in the range of Rs 3,800-3,900 per tonne in the near term. Once the arrival pressure subsides, the market can witness mustard seed to trade at around Rs 4,200 per tonne.

Palm oil: Taking a cue from the momentum in crude oil, the bio-fuel blending might gain momentum in Indonesia. The El Niño-induced drought has lessened output from the island nations, while prices are expected to remain supportive above Rs 500/10 kg (Multi Commodity Exchange) levels, due to increased imports from India. The deficit in production coupled with increased outflows from Malaysia and Indonesia (and, if it happens to be, the bio-fuel programme of Indonesia) will tighten the supply of palm oil and its constituents. We expect palm oil to trade at around Rs 510-545 levels in the near term.

However, the heavy influx of soybean oil from South America is to be monitored with caution. A dip in soybean oil prices could also drag down the palm oil.