Global oilseed output may dip 4.5%

Decline in soybean production leads to the fall

World oilseed production is likely to decline by 4.5 per cent in the current oil year (November-October) to 379 million tonnes compared with 397 million tonnes last year.

According to Dorab Mistry, Director, Godrej International, who was addressing a a conference in Guangzhou, China, the fall was mainly because of the 6.7 per cent likely decline in soybean output.

Mistry said unfavourable weather due to La Nina in the Brazilian province of Rio Grande do Sul and Parana, dry weather in the US and unsuitable temperature in India might pull down soybean output to 222 million tonnes this year from 238 million tonnes last year. Cottonseed and copra output, however, may remain unchanged at 44 million tonnes and 5 million tonnes respectively.

The estimated loss in soybean production may be compensated marginally by the rise in groundnut and palm kernels output to 24 million tonnes and 11 million tonnes from last year's 23 million tonnes and 10 million tonnes respectively.

In contrast, the output of sunseed and rapeseed is likely to drop to 27 million tonnes and 46 million tonnes from 30 million tonnes and 47 million tonnes respectively.

Mistry further said that despite soyoil accounting for a smaller portion of the world trade, it would be the price leader till April next year.

"The growth in palm oil production means that the fundamentals of palm, taken in isolation, are quite comfortable and, therefore, it will be a price follower rather than a price setter," he added.

"The job of the market is to make soyoil so expensive that demand is deflected towards palmoil until palm stocks begin to deplete and the prices start narrowing the gap with soyoil. For now, it is quite conceivable that soya will gain on palm and the premium for soyoil will widen until palm stocks begin to decline."

Palm stocks in Malaysia are likely to peak at about 1.6 million tonnes by December-end and then decline gradually. The pace of decline may depend on the price differential with soyoil. A large premium on soyoil will accelerate the decline in palm oil stocks and necessitate a greater upside in palm prices in the second quarter of 2008.

On prices, Mistry said that 3,000 ringgit was a fair value for crude palm oil and for the time being, the prices were likely to maintain the level.

"But if soyoil begins to run ahead, palm will follow strongly," he added.