Fundamentally Speaking

In its May 2022 WASDE report, USDA pegged soybean oil prices basis central Illinois for the 2022/23 season at 70.00 cents per pound, the second highest level ever next to this year's recently revised 75.00 cent per pound projection based on oilseed and product supplies rebounding in foreign markets.

Global vegetable oil production is expected to grow by 3% with major gains for soybeans, rapeseed and palm oil -- more than offsetting losses for sunflowerseed and olive oil. Global consumption is forecast to expand by nearly 4.6 million tons or 2%, primarily driven by palm and soybean oil growth in China.

As a consequence, global vegetable oil ending stocks are projected to grow by 4% to over 28.0 million tons, which is the second largest inventory ever. We note, however, that 16.53 million of that is palm oil stocks accounting for about 59% of total vegetable oil stocks; total veg oil stocks include palm, coconut, cottonseed, olive, palm kernel, peanut, rapeseed, soybean and sunflowerseed oils.

The problem is, even though palm oil is the most widely produced, consumed, and exported vegetable oil in the world, its use for cooking, food manufacturing and biofuels has been banned by many countries with the proclaimed aim to stop the deforestation of rainforests in mainly Indonesia and Malaysia, which are the two top global producers.

This graphic shows the stocks-to-use ratio of all vegetable oils, that of all vegoils less palm oil, and then the stocks-to-use ratio of the top four oils, which are palm, soybean, rapeseed and sunflower oil.

The 2022/23 total world vegetable oil stocks-to-use ratio including palm is projected at 13.2% and, though just barely above this year's figure, would still be the lowest since the 2016/17 season. That ratio minus palm oil is, however, a much lower 8.5%. Even though this chart only starts from 1996, the fact is the total world vegoil stocks-to-use ratio without palm oil is the lowest ever. The same is true for soybean oil, the second most produced, exported and consumed oil, where the projected 2022/23 world stocks-to-use ratio is seen at 6.4% -- also the lowest ever.

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