When the trans fat controversy heated up, leading to labeling regulations that went into effect in 2006, many soybean producers feared it was the end of their market for oil. Other oil-crop producers hailed it as a great opportunity. Neither group was far from the mark: Soy oil's production and share of edible oils both peaked in 2005, then fell.
Meanwhile, palm oil increased by 900 million pounds, canola by 400 million pounds and other oils (mainly corn and cottonseed) by 300 million pounds since 2005.
Shift to Palm. Reasons behind the shift include the trans fat health issue and economics. Negative publicity drove restaurants and consumers alike away from soybean oil. Palm oil promoters quickly pointed out that their product is free of trans fatty acids, has levels of oleic acid close to those in olive oil and contains vitamin E, carotenoids and other phytonutrients. The trade-off is that it also is higher in saturated fats (52% versus 15%) and lower in polyunsaturated fats (11% versus 61%) compared with soybeans—health facts the general press has largely overlooked.
Palm oil is far cheaper to produce than either soy or rapeseed oil, reports Rosidah Radzian of the Malaysian Palm Oil Board. Average oil yield per acre per year is 1.51 metric tons for palm and only 0.15 metric ton for soybeans. "Palm oil is the most efficient crop, producing the highest energy output-to-input ratio,” she says. "In addition, in absolute terms, it requires the lowest levels of pesticides, fertilizer and fuel for each unit of oil.”
Growing Market. Fortunately, the overall oilseed market is growing because of demand for fuel and the economic growth in China, India and other developing countries.
Palm oil consumption is surpassing production, and this year's ending stocks are forecast to drop, says Luke Chandler of Rabobank. "Stocks are projected at 14.7% of last year's consumption, 1.3 percentage points lower than at the end of 2009.”
The substantial increase in global soybean supplies means prospects are less rosy. "We have a bearish view toward flat prices for soybeans and most competing oilseeds,” Chandler says.
"However, with the tightness expected in the vegetable oil market, and especially palm oil, through the rest of 2010, prices should remain fairly strong in relative terms,” he adds. "Oil's share of crushing margins will increase given the negative outlook for meal prices.”
Top Producer, Spring 2010