Vegetable Oil Supply Problems Drive Prices to Record High

Soybean oil prices reached a record high on Friday as Indonesia’s decision to ban exports of palm oil increased supply concerns for alternative vegetable oils, the stocks of which are already low.

The vegetable oil prices have already been soaring as the war in Ukraine, the world’s top supplier of sunflower oil, makes shipments almost non-existent and the world’s biggest soybean oil exporter Argentina has dealt with droughts.

In addition to tight supplies, easing COVID-19 restrictions has also caused a serious demand growth for food and biofuels, including vegetable oil. While producers have announced capacity expansions, most of the new capacity will not be online for at least a year.

Soybean oil prices on the Chicago Board of Trade rose to a peak of 83.21 cents per lb. on Friday, up 4.5% on the day and a record high, before falling back to 81.42. It is still a record for the most actively traded futures contract. Prices have now risen by almost 50% so far this year.

Indonesia has banned the export of palm oil effective from April 28, to fight rising domestic prices. Indonesia is the world’s biggest palm oil producer. The country’s move is expected to further fuel food inflation elsewhere.

Palm oil consumers around the world will now be looking to substitute it with sunflower oil, rapeseed oil and soybean oil, but the stocks of those are already low.

The already existing food inflation has become even worse following Russia’s invasion of Ukraine, which is a major producer and exporter of grains, sunflower oil and rapeseed oil.

The UN’s World Food Programme said earlier this month that food prices have climbed nearly 13% in March, a new record.

To fight domestic food inflation, Argentina has also halted soybean oil exports briefly in mid-March before it increased the export tax rate for the vegetable oil.

To meet some of the global demand, the U.S. soybean oil producers will produce 3.5% more from a year ago, a record 60.3 million tonnes. However, the output is hard to increase further until the new plants become operational. 10 to 12 more soy processors are expected to come online in the U.S. by 2025.

Palm oil is the world’s most widely used vegetable oil and is used in the manufacture of many products from chocolate to laundry detergents.

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