Premium for US soyabean oil rises as industrial use drives up demand

The premium for the US soybean oil has increased to about $ 150 a tonne compared to South America on higher demand projections from industrial users, thereby driving up the prices.

According to the US Department of Agriculture (USDA), the premium has increased from $ 20 a tonne in early April, though lower than the $ 400 witnessed in June 2021. Also, during April-August last year, the premium averaged $ 270 a tonne.

According to BV Mehta, Executive Director, Solvent Extractors Association of India (SEA), the US quoted soybean oil at $ 1,932 a tonne free-on-board during the weekend, while the Netherlands offered it at $ 1,876. Argentina’s offer was the most competitive at $ 1,711, while Brazil’s was at $ 1,725.

India imports soybean oil mainly from Argentina and Brazil, and hence, the premium is unlikely to have any impact

Up 30% this year

“While food and feed use of all oils in the US is projected to grow less than 1 per cent through the 2022-23 marketing year starting September, industrial uses are projected to grow 28 per cent accounting for all consumption growth,” the USDA’s Foreign Agriculture Service said in its “Oilseeds: World Markets and Trade” report.

Soybean oil and petroleum prices have increased sharply this year. Soyabean oil prices are up more than 30 per cent in the US and 20 per cent in South America this month. Petroleum prices, on the other hand, are up 45 per cent during the same period, the report said.

According to analysts, 40 per cent of soybean oil in the US is used for producing biofuel with corn (maize) making up another 36 per cent. The issue gains significance due to the Russia-Ukraine war impacting the prices of food commodities such as wheat, corn, oilseeds and barley soaring.

Mehta said nearly 50 million tonnes (mt) of the 240 mt of edible oils produced globally are used for bio-diesel, while there are other industrial uses as well.

“Practically, more edible oil supplies are moving to fuel. This includes crude palm oil in Indonesia, where there is a target to use 30 per cent of the production for biodiesel, ”he said.

Conversion inefficiencies

The skyrocketing prices and surging inflation, which are at a 40-year high in the US, have renewed the debate on food versus fuel and whether wheat crops should be diverted for fuel.

The World Resources Institute has said that the conversion efficiencies of food crops to fuel are low, thereby challenging the sustainable food futures.

“Such low conversion efficiencies explain why it takes a large amount of productive land to yield a small amount of bioenergy, and why bioenergy can so greatly increase global competition for land,” it said.

“The rising price premiums for US soybean oil reflect a stronger demand versus supply balance in the United States relative to Brazil and Argentina. The US domestic market is projected to consume 93 per cent of all soybean oil produced this year. This compares to 80 per cent in Brazil and 13 per cent in Argentina when biodiesel exports are factored in, ”the USDA said.

Domestic offtake

The US is also a net importer of vegetable oil, with imports projected to account for a quarter of the total domestic use. Its total domestic oil consumption is forecast 9 per cent higher in 2022-23 compared to 2 years ago. This is in contrasts with Brazil, where domestic oil demand is estimated to decline in the coming year from 2020/21.

In the mid-2000s, rising energy prices became the primary price driver for vegetable oils. The situation has changed today with rising vegetable oil prices reflecting tight supplies.

Droughts in Canada and South America, along with events in Ukraine and trade-restricting policies in some countries have reduced available vegetable oil supplies, the USDA said.

Biofuel role in transportation

SEA’s Mehta said: “Every country’s policy is self-centered.”

The World Resources Institute said biofuels from food crops today — such as maize, vegetable oils, and sugarcane — provide about 2.5 percent of the world’s transportation fuel.

It said, if the crop-based biofuels are phased out, the 2050 calorie gap will drop from the estimated 70 per cent to 60 per cent, a significant step for sustainable food future.

Published on

June 13, 2022

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