London — Supply tightness in the first half of 2021 in the soft oils market, palm oil production recovery and a rebound in vegetable oil demand are set to be the defining dynamics across the vegetable oil markets in the year ahead.
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Sunflower oil supplies through H1 of 2021 will be tight because of the poor performance of sunflower seed harvests across Black Sea producers. The 2020-21 harvests in Russia, Ukraine, Romania, Bulgaria and Moldova were hampered by drought-like conditions during the growing season, causing yields and oil contents in seeds to be lower than market expectations.
This supply dynamic will be carried through into the first half of 2021, keeping prices supported. A rebound in demand is also expected as economies around the globe recover and re-open following the COVID-19 crisis. The opening of the hoteling, restaurant and catering industries would be bullish for sunflower oil demand. Consequently, the success of vaccination programs across the world will be a determining factor behind the recovery in vegetable oil consumption.
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Supply tightness will be accentuated by Russia's decision to increase the export tax on sunflower seeds to 30% from Jan. 9 to June 30. The ban is being implemented after mounting pressure from Russia's crushing industry to stabilize rising seed prices and secure supplies for domestic processors. Turkey, the main export market for Russian seeds, is set to increase sunflower oil imports in 2021 to compensate for the higher Russian export tax on seeds. Turkey has reduced the import tax on sunflower oil from 36% to 3% from Nov. 25, 2020, to June 30, 2021, to help sunflower oil supplies in 2021.
Sowing for the new crop in the Black Sea will start in early spring and the high oil prices reached in 2020 could encourage farmers to increase acreage for the 2021-22 crop.
Soybean oil availability to weigh on sunflower oil
Ultimately, sunflower oil prices will be competing with rival soft oil soybean oil through 2021, and the sunoil-soybean oil spread will be closely watched.
New soybean crop supplies from Brazil and Argentina will arrive in Q1 and Q2 in 2021, which will add pressure to soybean oil prices. To remain competitive with soybean oil, sunflower oil prices may follow suit to prevent a significant premium over soybean oil denting demand. La Nina is causing dryness in South America, which could harm the soybean crop in Q1 2021.
Palm oil could be set for a production recovery
As La Nina is causing dryness in South America, it is causing heavy rains in Indonesia and Malaysia. This has delayed harvesting and caused logistical problems transferring fresh fruit bunches on roads during H2 2020 but could bode well for the crop in 2021.
"La Nina attracts rains in Malaysia and Indonesia and this will benefit palm oil production -- production recovery is going to happen due to rains, fertilizers and a return of foreign labor," said Anilkumar Bagani, research head of Sunvin Group.
A sustained period of low palm oil prices reduced fertilizer use for Malaysian and Indonesia producers in 2020 due to being a costly production input. However, current high prices that are set to extend into Q1 2021 could stimulate fertilizer use in 2021. Furthermore, COVID-19 caused lockdown restrictions and limited the movement of foreign workers. The absence of a foreign labor force in palm oil-producing countries slowed production in 2020. With hope of a successful COVID-19 vaccination campaign in 2021, the return of foreign laborers would help palm oil production recover.
The reopening of the hoteling, catering and restaurant industries will stimulate palm oil demand. Soft oil demand has been boosted through lockdowns as a preference for home cooking, with palm oil typically preferred in the HORECA sectors.
India's reduced import duty on crude palm oil from 37.5% to 27.5% in Q4 2020 is likely to help lift CPO imports through 2021. This makes palm oil imports more competitive to soft oil for Indian buyers going into the new year.
Indonesia's increased export levy on CPO exports in Q4 2020 has indicated its commitment to its B30 biodiesel mandate going into 2021. The levy is already factored into prices heading into 2021 and so should not be supportive to prices, but Indonesia's commitment to the program is bullish for demand.
EU rapeseed crop to stall despite high prices
In the rapeseed market, EU rapeseed acreage is expected to remain unchanged in 2021 despite high prices. A contracting crop in recent seasons and higher global oilseed prices have lifted rapeseed prices but despite attractive prices, the EU acreage is not expected to increase due to sowing difficulties in some countries.
According to consultancy Strategie Grains, the EU acreage for the 2021-22 crop is expected to be 5.45 million hectares, marginally lower than the 2020-21 acreage of 5.47 million hectares. This acreage is 13% below the five-year average.