Key Forces in Global Markets
Presentation to Canola Council
March 2010
by David Jackson and Nick Fereday
LMC International, Oxford and New York
www.lmc.co.uk
Outline of this presentation
• We shall try to identify some of the issues that
will be most important in the main oilseed
sectors if/when the world comes out of recession
• We will look at how oilseeds are competing with
grains for area
• Then we take a look at soybeans and palm oil
before seeing where rapeseed/canola fits into
this structure
The global battle for acres
250
125
200
100
150
75
100
50
50
25
0
0
1972
1975
1978
1981
1984
1987
1990
1993
Meals, Soymeal Equivalent
1996
1999
Oils
2002
2005
2008
Oil (Million Tonnes)
Meal in Soymeal Equivalent (Million Tonnes)
Growth in world meal and oils and fats
demand, 1972-2008. The curves have
diverged as biofuel demand has grown.
160
680
140
660
120
640
100
620
80
600
60
580
40
560
20
540
0
1965/66
1971/72
1977/78
1983/84
Oilseeds
1989/90
1995/96
Grains
2001/02
520
2007/08
Grains Area (million hectares)
Area (million hectares)
As a result, global grain areas have
stalled, while oil crop areas have moved
ahead steadily – until recently.
This holds true for most producers,
especially for the major soybean exporters.
So who will grow the grains?
Oilseeds area, % of total area harvested
70
60
50
40
30
20
10
0
1965/66
1971/72
World
1977/78
EU-27
USA
1983/84
1989/90
China
1995/96
Argentina
2001/02
2007/08
Brazil
Russia
Soybeans and meal markets
Meal demand is strongly related to income
and population and is predictable. Here is
the USA for the last 30 years…
Per Capita Meal Consumption (kg/year)
120
110
100
90
80
70
60
20
25
30
35
Real per Capita GDP ('000, local currency)
40
…and here is China. The path is very
similar everywhere, and grows at 4% faster than yields can deliver.
Per Capita Meal Consumption (kg/year)
30
25
20
15
10
5
0
0
1
2
3
4
5
Real per Capita GDP ('000 Yuan per capita)
6
7
250
125
200
100
150
75
100
50
50
25
0
0
Q1.2005
Q3.2005
Q1.2006
Q3.2006
Freight to Europe
Q1.2007
Q3.2007
Brent Crude
Q1.2008
Brent Crude, US$/barrel .
Freight to Europe from Mato Grosso, US$/tonne .
So, supply has to expand its area , but what
does this cost? The interior of Brazil needs
higher prices to cover its costs.
But soy expansion does not solve the oil
requirement, which is growing even faster
than meal…For that, we need palm oil.
Average Growth Rate, 2005-2020, %
16%
13.5%
14%
14.1%
12%
10%
8%
6%
5.0%
4.3%
4.5%
4%
2.2%
2%
0%
Food Oils
Biofuel Oils Other NonFood Oils
Total Oils
Total Meals
Poultry &
Pig Meat
Oil Palm
• Don’t Forget!!
• Oil palm is a tree crop, and takes years to
start yielding, and more years before it
reaches full maturity
• This creates a wave of future output that
has little to do with prices in 5-10 years to
come
• This means that other oils, notably rape
and sun, have to adjust their supply to
match demand
% Deviation of Price from Long Run Trend
We have had high vegetable oil prices
recently, and as we can see here, high
prices mean palm plantings increase
quickly
60%
4%
40%
3%
20%
2%
0%
1%
-20%
0%
-40%
-1%
-60%
-2%
-80%
-3%
1979
1982
1985
1988
Profitability of Production, LH Axis
1991
1994
1997
2000
2003
% Deviation of New Plantings from Trend
2006
But, because it takes 4 years for a palm to
mature, we won’t see the wave of palm oil
till later this decade……but, it’s coming….!
61
Million tonnes .
55
49
43
37
31
25
19
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Long Run Trend
$60
$80
$100
Palm oil could add 40 million
tonnes of oil by 2020. CCC would
like to add 1 million tonnes.
Rape/canola oil demand is concentrated
among its major producers. To capture
markets outside of these areas is hard.
20
18
16
Million Tonnes
14
12
10
8
6
4
2
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
EU
China
India
USA
Japan
RoW
Mexico
Canada
Australia
Russia
Turkey
Ukraine
2009
The same is true for rapeseed/canola meal
35
30
Million Tonnes
25
20
15
10
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
EU
China
USA
India
RoW
Japan
Mexico
Canada
Thailand
Australia
Turkey
Russia
Indonesia
Ukraine
Who will increase demand for rape/canola
products?
•
Regions with a history of canola/rape oil
production and consumption offer the best
prospects, but this requires expanding output
deficits
•
The EU and China fit the bill best in this regard
•
This demand can be supplemented by the growth
of healthy oil intake in less price sensitive
markets, such as the US for Canadian canola
Does the EU need canola oil
imports ?
EU rapeseed plantings have expanded
exceptionally fast. Total area in this diagram
has risen from 4.0 to 6.6 million ha.
1,800
1,600
000 hectares
1,400
1,200
1,000
800
600
400
200
0
France
Germany
Poland
UK
Romania
Highest of 2007 and 2008
Czech
Hungary
Denmark
Slovakia
Lithuania
Bulgaria
Sweden
Latvia
Estonia
Finland
Austria
Spain
Italy
Belgium
Luxembourg
Slovenia
Netherlands
2001
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Hungary
UK
Romania
Bulgaria
Estonia
Slovakia
Denmark
Poland
Luxembourg
Lithuania
France
Germany
Latvia
Slovenia
Belgium
Czech
Finland
Austria
Sweden
Netherlands
Spain
Italy
2007/08 Area as % of Historical Maximum
In historical terms, the current EU rapeseed
areas are larger than anything that has gone
before.
What does the EU situation mean for
canola?
•
The EU’s decision to press ahead with biodiesel - but
to be discerning with feedstock - presents considerable
opportunities
•
EU rapeseed area is approaching or exceeding
conventional agronomic maxima in many key regions
•
The solution is imports, either as seed or oil, and GM
attitudes are softening
•
However, if the EU is to import canola seed, given
GMO clearance, a question would be whether the
meal can be absorbed by the EU market?
How has greater EU rapeseed
output affected meal markets?
EU meal consumption has switched in some
uses from soymeal to rapeseed meal…
50
45
million tonnes
40
35
30
25
20
15
10
5
0
1989/90
1992/93
1995/96
1998/99
SBM
2001/02
RSM
2004/05
2007/08
French rapeseed meal use shows that dairy
and beef have consumed the lion’s share…
1,000
000 tonnes
800
600
400
200
0
2002
2003
Dairy cattle
2004
Other cattle
2005
Pigs
2006
2007
Poultry Meat
Others
2008
Rapeseed meal has displaced soymeal in
France, rather than growing simultaneously
4,500
4,000
000 tonnes
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2002
2003
Dairy cattle
2004
Other cattle
2005
Pigs
2006
Poultry meat
2007
2008
Layer
Others
And more good news is that rapeseed meal
has not had to compete too hard on prices.
Real 2008 US$ per Tonne
600
500
400
300
200
100
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Rapeseed Meal Trend
Soybean Meal Trend
Sunflower Meal Trend
Rapeseed Meal
We all know China is expanding
its demand, but does it need
canola?
The widening Chinese soybean meal deficit
contrasts dramatically with……
45
40
Million Tonnes
35
30
25
20
15
10
5
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Net meal production
Total meal demand
…a much more balanced rapeseed oil
sector.
6
Million Tonnes
5
4
3
2
1
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Net oil production
Total oil demand
So why the recent surge in net seed
imports?
4
Million tonnes
3
2
1
0
-1
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Oilseeds
Oil
Meal
Chinese prices provide the answer,
thanks to a shift in government policy.
800
700
US$/Tonne
600
500
400
300
200
100
Oct-01
Sep-02 Aug-03 Jul-04
Canada
Jun-05 May-06 Apr-07 Mar-08 Feb-09
EU
China, local seed
Jan-10
But pushing up local prices encouraged seed
imports and new crushers reaped the benefits.
Meanwhile, Chinese reserves were mounting…
800
600
RMB/tonne
400
200
0
-200
-400
-600
Oct-01
Sep-02 Aug-03
Jul-04
Jun-05 May-06 Apr-07 Mar-08 Feb-09
6 per. Mov. Avg. (Local seed)
6 per. Mov. Avg. (Imported seed)
Jan-10
A longer term strategy for increasing
exports to China would mean capturing
growth, not displacing local rapeseed
12
10
Kg
8
6
4
2
0
1990
1995
1999
2000
Urban edible oil purchase
2006
2007
2008
Rural edible oil consumption
2009
And there are encouraging signs in the
meal market. Look at milk consumption!
60
Million Tonnes
50
40
30
20
10
0
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Broiler consumption
Beef and Veal consumption
Swine consumption
Milk consumption
Cattle prodoction (Million HEAD)
Some conclusions
A battleground is emerging for rape/canola
oil, with EU biodiesel and healthy oil
markets pulling up the long term price trend.
Real 2008 US$ per Tonne
2,000
1,600
1,200
800
400
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Rapeseed Oil Trend
Soybean Oil Trend
Sunflower Oil Trend
Rapeseed Oil
Summary – is there any bad news?
•
•
•
•
•
In short, not much for now, but…...
The whims of EU bureaucrats may not be the most
stable base for expansion
But increasing the flow of output to the EU may be
self-fulfilling, as it will ease the pressure on food prices
that their own biofuel delusions will inevitably create
The approaching wave of palm oil provides
another potential cloud, and when this arrives later
in the decade, oil prices in general will weaken
But, lower prices will also keep EU biofuels in vogue,
and will allow consumers to seek out healthier oil
options
Thank you
www.lmc.co.uk