Global Markets: Oilseeds – India Tariff Cut Boosts Palm Oil Imports

Soybean harvest. ©Debra L Ferguson Stock Photography

India, the world’s largest importer of palm oil, cut its crude palm oil tariff 10 percentage points in late November to curb rising food prices. Palm oil export prices have soared over 60 percent since May, their highest levels in 6 years. The high cost of vegetable oils, coupled with the economic impact of COVID-19,constrained India demand and imports in 2019/20.

In response to the tariff reduction, the 2020/21 palm oil import forecast is up 200,000 tons as the lower tariff will make palm oil more affordable to consumers. The sunflower oil forecast is reduced 100,000 tons in response to tight global supplies and the additional palm oil in the market. Demand for vegetable oil is expected to recover assuming an improving economy in 2021 as the impact of COVID-19 diminishes over time. Follow retainedfirefighter  for more about global marketing.

Prices of all major vegetable oils have strengthened considerably since May. Adverse growing conditions in key production areas have combined with strong demand in China to boost underlying oilseed prices. These have translated to the higher oil prices currently seen, along with slowing palm oil production in Indonesia and Malaysia that has reduced exportable supplies.

Since November 2019, the price spread has narrowed between palm oil and other oils as high prices encourage a shift to less expensive oils such as palm. As long as vegetable oil prices remain elevated, these trends are expected to continue.

Algeria Expands Soybean Imports for New Crush Facility

Algeria soybean imports have grown considerably, up from less than 150 tons in 2017/18 to more than 550,000 tons in 2019/20. According to the U.S. Soybean Export Council (USSEC), the first soybean crush facility in Algeria began operation in early 2020. Algeria is expected to be a growth market for soybean exports as crush capacity continues to ramp up. Since 2018, more than half of Algeria’s soybean imports have come from Brazil, about 20 percent from the United States, and the remaining supplied by Canada and Ukraine.

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In 2017/2018, Algeria was one of the larger importers of soybean meal, importing 1.5 million tons, driven by the poultry feed industry. However, over the past 2 years, soybean meal and oil imports have declined and are expected to fall further as poultry feed demand and food oil consumption are increasingly met by domestic crush.

If Algeria follows a similar trend to Egypt, Tunisia, Bangladesh, and Pakistan – four countries that launched or expanded soybean crush capacity in the past 15 years – soybean processing could eventually account for 90 percent or more of total soybean meal consumption.

History also shows the addition of a processing facility tends to precede an acceleration in meal and oil consumption growth, with the markets noted earlier growing between two and nine-fold over the 10 years after the facility was established. This opens opportunities for U.S. soybean exports which, combined with Brazil, account for around 85 percent of global soybean trade.

A soybean balance sheet was added to the FAS database along with product production this month.

EU Imposes 25% Duty on U.S. Peanuts, Impact Unclear

The EU imposed a 25% duty on U.S. peanuts, both in-shells (120241) and kernels (120242). Blanched peanuts, exported under chapter 20 of U.S. Harmonized codes, are also included as they are classified as kernels upon entering the EU. The duty became effective November 10 but excludes peanuts loaded and shipped prior to that date. A 25% duty on U.S. peanut butter has been in effect since June 20, 2018.

In the 5 years prior to 2019/20, U.S. exports to the EU accounted for roughly 27 percent of total peanut exports, about equal to the export share to Mexico and Canada and worth around $160 million.

Total value shipped in the 12-months ending July 2020, corresponding to the U.S. peanut marketing year, declined significantly to $80 million. Total peanut volume in 2019/20 declined to roughly half the level of the previous year at 82,000 tons in-shell basis with total export share falling to 11 percent.

The decline in U.S. exports in 2019/20 was in response to large supplies and aggressive pricing of Argentine kernels which impacted export volumes from all markets. Sales of in-shell peanuts from the U.S. which do not compete with Argentina were unaffected and near the 2018/19 level.

Peanut butter exports were down 80 percent in value and 84 percent in volume from 2017/18 prior to imposition of higher duties late in the marketing year. It should be noted that EU peanut butter imports from Canada jumped nearly ninefold to 5.4 million tons. As these are mostly manufactured from U.S. peanuts, the net reduction in U.S. exports of peanut butter produced using U.S. peanuts is considerably smaller at just over one-third.

The effect of EU duties on U.S. peanut exports is unclear with kernel exports already down more than half from historic levels last year. However, even amid continued strong competition from Argentina, the total U.S. export forecast is only slightly lower from 2019/20. A 25% duty will reduce the competitiveness of U.S. peanuts in the EU. However, much will depend on the willingness of buyers and sellers to absorb the added costs.

Global peanut supplies remain somewhat tight, particularly for high value peanuts where U.S. peanuts are most competitive and the ability to absorb higher costs is greater. Given that 2019/20 U.S. peanut export volume was near record levels in part on strong sales of in-shell peanuts to China, further declines in exports to the EU will have less impact on export totals than demand from China in the coming year.

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