Synopsis - Nirmal
Transcript of Synopsis - Nirmal
November 1, 2010
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Synopsis:
• The La Nina effect on South American crop.
• Rape seed and Sun seed crop -A concern. Reduced Rape seed crop and crush.
Sun seed crop at three year low.
• Combined supplies of Rape oil and Sun oil to decline by 1.46 million tons.
• World Biodiesel output on the rise. US' soy oil usage for methyl ester to
revive.
• South America's increasing usage of Soy oil for Biodiesel leading to lower
exports of Soy oil.
• Argentina's domestic consumption of Biodiesel to double for the year 2011.
• EU's gap between production and demand of Edible oils to widen.
• China's edible oil imports to cross 10 million tons mark.
• Imminent Biodiesel demand by EU, Brazil, Argentina and the US.
• India's Edible oil imports to rise further despite of revival in domestic pro-
duction of Edible oils.
• World incremental demand-supply deficit to widen further.
• Trimming edible oil carry forward stocks and declining edible oil stocks to
usage ratio.
• Big Acreage battle brewing for 2011/2012.
Factors that may pose risk to our view:
• Any downside of 10-15% in crude oil prices is likely to fuel a similar down-
side inedible oil prices.
• Globally most of the agriculture commodities have been rallying mainly on
weather concerns and apart from demand and supply dynamic, weakness in
dollar due to expectation of quantitative easing and stimulus package in United
States has played very important role in this rally. We believe that markets
are discounting quantitative easing well in advance and moving up, but if
stimulus package is less than market expectation (i.e. $1 trillion) than we may
see a bout of profit taking in commodities and in that case even oilseeds
shouldn't remain exception.
Outlook: The outlook for edible oils remains bullish. We expect edible
oil prices to rally further tracking weather concerns in South America
caused by La Nina. At the same time we expect soybeans to come out as
the biggest loser as far as the acreage battle for the year 2010/2011 is
concerned. We expect tightness in world edible oil stocks and we believe
the upside in edible oil prices is here to stay. A correction or a profit
taking of a percent or two cannot be ruled at these levels. One can wait the
price to cool off from current levels and then initiate fresh buying posi-
tions in edible oil futures.
Price forecasts
BMD CPO RM 3250-3375/tonne
CBOT Soy oil 54.25-57.45 centes/ lbs
NCDEX Soy oil Rs. 580-605-632/
10kgs
MCX CPO Rs. 485-507-523/ 10kgs
ACE Soy oil Rs. 580-605-632/ 10kgs
Time frame: 9-12 months
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Edible oil prices were seen in limelight during last couple of months mainly
because we saw some smart gains posted by all the major edible oil traded. Soybean
oil was seen posting a 2 year on CBOT after trading in a very thin range since last
almost 2-2.5 years. Palm oil too was seen breaching its previous highs of Ringgit
2799 in May 2009 and posted a fresh new high of Ringgit 3070 in October 2009.
This was possible mainly because of couple of good reasons, but the crux of this
entire sudden rise in edible oil prices was one major factor i.e. weather.
The million dollar question from here on which is bothering everybody's minds
these days is whether the ongoing rally is likely to continue or not. We believe
that edible oil prices have got a long to go, and as far as the ongoing rally is
concerned. Various factors which make us believe that the rally in edible oil
prices is likely to continue are discussed in detail below. but still all an all the
main trigger for upside in Edible oil prices still remains the ongoing La Nina in
the western part of the world.
Last year South America alone added additional 32 million tons of soybean to
world soybean balance sheet. We had witnessed a tsunami of soybeans especially
from the Southern hemisphere of the world. This year there is great speculation
lingering around about how South America's soybean production is likely to be
with huge weather problems faced due to ongoing La Nina.
As of now the weather has been quite reasonable with respect to the sowing
process in case of Argentina. The soil moisture has improved quite a lot in the
key soybean producing state due the recent showers witnessed in Sept/Oct. But
in case of Brazil, its largest Soybean producing state Mato Grosso is experiencing
very hot and dry weather. Such a situation has led to great delays in sowing of
soybean. Moreover the rains in other state such as Parana, Rio Dul is not that
adequate to fulfill the crops growing requirement.
As per our estimates we do not expect the weather to remain favorable even
during the growth stage of the crop. We believe that this year's soybean yield in
South America will eventually turn out to be lower as compared to that of last
year. Thus we expect South America soybean crop to decline by 8-10% from
previous year.
Story So far
The La Nina effect on South
American Soybean crop
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Soybean output in South America (million tons)
2007 2008 2009 2010 2011F
Brazil 58.73 60.02 57.17 68.69 62-63
Argentina 48.30 46.20 31.50 54.70 48-48.50
Paraguay 5.86 6.12 4.15 7.48 6.50-6.70
Bolivia 1.60 1.48 1.46 1.68 1.65
Uruguay 0.82 0.90 1.17 1.94 1.77
Total 115.31 114.72 95.45 134.49 119.92-121.62
Source : USDA, Oil World, NB Research
Rapeseed S&D’s (million tons)
2006/07 2007/08 2008/09 2009/10E 2010/11F
Opening stock 7.27 6.36 4.32 7.22 7.4
Production 47.67 48.63 58.37 59.8 55.64
EU-27 16.12 18.44 19.07 21.68 19.98
Ukraine 0.6 1.06 2.87 1.87 1.45
Canada 9 9.53 12.64 12.5 10.87
China 12.65 10.57 12.1 12.8 11.8
India 6.2 4.85 6.2 5.5 5.35
Total Supplies 54.94 54.99 62.69 67.02 64.17
Crush 45.9 48.28 51.95 57.22 55.82
Other use 2.68 2.39 3.52 3.2 2.94
Ending stock 6.36 4.32 7.22 7.4 5.41
EU-27 1.3 0.72 1.53 1.47 1
Canada 1.82 1.46 1.8 2.12 1.3
Source : USDA, Oil World, NB Research
Rapeseed output is likely to plunge for the year 2010/11 to 55 million tons,
which would be first ever reduction in last several years. World Rapeseed output
is likely to plunge by 4.16 million tons for the year 2010/11. Such a development
came into existence mainly because of two reasons. European Union & Black
seas rapeseed crop is likely to plunge by almost 7-8% due weather uncertainties
caused by the ongoing La Nina. And excess wetness and rain in the key rapeseed
growing areas of Canada during the harvesting period which will lead to rapeseed
production to fall below 11 million tons. China too is likely to witness some
reduction in rapeseed output because of frost weather witnessed by the crop
during its growth stage.
South America’s soybean crop to
decline by 8-10%
World Rapeseed supplies to
decline by 5%
Rape seed and Sunseed crop - A
Concern
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All an all we conclude that such a reduction is likely to lead to lower rush of
Rapeseed crop in turn which will lead to lower Rape oil production. With overall
consumption of edible oil remaining robust and a likely reduction in Rape oil due
to lower crushing is likely to further tighten the Oil stocks for the year 2010/
2011.
World Rapeseed Crush & Rape oil supplies
Sunseed S&D’s (million tons)
2006/07 2007/08 2008/09 2009/10E 2010/11F
Opening stock 2.46 1.76 2.58 2.98 1.76
Production 30.39 29.32 34.78 32.16 31.64
EU-27 6.41 4.97 6.91 6.99 6.85
Russia 6.35 5.5 7.3 6.5 6.2
Ukraine 5.55 4.88 7.1 7.3 6.9
USA 3.19 4.62 3.2 1.38 1.38
Argentina 0.82 4.62 3.2 2.3 2.13
Total supplies 32.85 31.08 37.36 35.14 33.94
Crush (Sept/Aug) 27.64 25.13 31 30.1 28.96
Other Use 3.45 3.37 3.38 3.28 3.37
World sunseed crop is likely to plunge for second year in a row during 2010/11,
which will leave World Sunseed production at three year low during the year
2010/11. The planting for Sunseed were seen at record high for Russia and
Ukraine. Despite record acreage the production is likely plunge because of
drought faced by Russia and Ukraine which has reduced overall food grains output
by minimum 15-20% for the year 2010/2011. A reduction in crop is likely to
reduce the Sunseed crushing by 1.14 million tons for the year 2010/2011.
0
10
20
30
40
50
60
70
2006/07 2007/08 2008/09 2009/10 2010/11F
In ('
mill
ion
tons
)
Rape seed crush Rape oil supplies
Source : USDA, Oil World, NB Research
Source : USDA, Oil World, NB Research
World Sunseed crop at three year
low
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Combined Rape oil & Sun oil supplies
A decrease in Rapeseed and Sunseed production followed by lower crushing of
both Sunseed and Rapeseed is likely to reduce the overall supplies of edible oils
for the year 2010/2011. For the first time in several years we are likely to see a
decline in combined supplies of Rape oil and Sun oil. For the year 2010/2011
combined supplies of Rape oil and Sun oil is likely to decline by 1.46 million
tons against an average increase of 1.5 million tons in last five years. All these
factors together are likely to prove bullish for the entire edible oil complex and
support edible oil prices in long term.
Alternate usage causing problems for primary usage.
World Biodiesel production has witnessed a tremendous growth since last decade.
The world Bio-diesel production has grown almost 34.35% on CARG basis in
last ten years. And the same is expected to continue for the years to come at a
minimum growth rate of 15-18% going forward.
For the year 2011/2010 we are likely to witness an incremental demand of Edible
oils of more than 7 million tons of which 3 million tons will be contributed by
Bio-diesel sector alone. Key players are EU-27, Argentina & Brazil and US followed
by India, China and Indonesia who are likely to induce biodiesel mandate in
years to come.
25
26
27
28
29
30
31
32
33
34
0
5
10
15
20
25
2006/07 2007/08 2008/09 2009/10 2010/11F
In ('
mill
ion
tons
)
In ('
mill
ion
tons
)
Rape oil supplies Sunoil Produc�on Combined Rape oil and Sun oil supplies
Source : USDA, Oil World, NB Research
Combined supplies of Rape oil &
Sun oil to decline by 1.46 million
tons.
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The usage of edible oils for production of Bio-diesel has been in the debate for
almost more than a year to decide the fate of edible oil prices. With US Bio-diesel
tax expired since Dec 2009 and no new development on the same has led to a
drastic reduction in usage of Edible oils for Biodiesel in the US. Off late there has
been a hope about same bio-diesel tax credit (RFS2 guidelines) too be passed
retrospective. Such a development will force the Bio-diesel plant owners to step
up their production of Biodiesel. The Biodiesel production for the year 2010 till
date has been less than 50% that of 2009 as due to absence of the tax credit all the
plants in US were running in great disparities. For the year 2010/11 USDA too
has increased its estimates for usage of Edible oil for methyl ester (Bio-diesel) to
2900 mn lbs from 1700 mn lbs.
US’s Soy oil usage for Methyl ester
As clearly discussed in the above chart United states usage of Soy oil for production
of bio-diesel is likely to revive in months to come with an expectation of approval
Source : Oil World, NB Research
0
5
10
15
20
25
2003 2004 2005 2006 2007 2008 2009 2010 2011FIn
('m
illio
n to
ns)
World Biodiesel output
Source : USDA, Oil World, NB Research
0
200
400
600
800
1000
1200
1400
1600
2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011F
In ('
000
tons
)
US Soy oil usasge for biodiesel to
witness a revival.
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for 1$ tax credit will be approved soon. Moreover US's consumption of Soy oil
domestically too is expected to revive which will trim the overall ending stock of
US soy oil to 2,371 million lbs from 3,176 million lbs as per USDA October
report.
Brazil's & Argentina's lower exports of Soy oil
For the year 2009/10 we saw a drastic decrease in South America's soy oil exports
primarily from Argentina mainly on the back of a trade dispute between China
and Argentina which actually stalled China's imports of soy oil from Argentina.
But such a gap was more or less fulfilled primarily by India and a few other
nations. The actual reason as per us what we believe for a drastic reduction in soy
oil exports was Argentina's and Brazil's implementation of compulsory 5% bio-
diesel mandates caused a greater usage of Soy oil towards blending activities.
For the current year prospects as far as Argentina and China's trade relations are
concerned they have shown some sign of improvement, as China has resumed its
import of soy oil from Argentina. And recently there has been a purchase of soy
being reported by a Chinese buyer for the same.
South America’s Soy oil Production (million tons)
2007 2008 2009 2010E 2011F
Argentina 6.96 6.02 5.77 6.82 7.3
Brazil 6.05 6.27 5.9 6.7 6.75
Total 13.01 12.29 11.67 13.52 14.05
As far as the usage of Soy oil for production of Bio-diesel is concerned it will we
be seen making new highs as the domestic plus the export demand for the same is
expected to remain robust in the coming months.
South America’s Biodiesel Production (million tons)
2007 2008 2009 2010E 2011F
Argentina 0.18 0.72 1.18 2 2.5
Brazil 0.36 1.03 1.41 2.05 2.3
Total 0.54 1.75 2.59 4.05 4.8
Recently Kirchner Administration signed a mandate to produce 70KMT/months
and the domestic mandates in Argentina are likely to shift to 7% during 2011 and
to 10% for the year 2012.
Source : USDA, Oil World, NB Research
Source : USDA, Oil World, NB Research
Biodiesel guzzels South America’s
soy oil exports
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South America’s Soy oil Exports (million tons)
2007 2008 2009 2010E 2011F
Argentina 6.5 5.07 4.56 4.8 5
Brazil 2.34 2.32 1.59 1.6 1.2
Total 8.84 7.39 6.15 6.4 6.8
Whereas Brazil is likely to continue with its old mandate of compulsory blending
5% of Bio-diesel, but at the same its domestic appetite for energy product is likely
to increase for the years to come which in turn is likely to increase to the usage of
soy oil for production of Bio-Diesel.
Argentina Biodiesel Production, Exports & Consumption (‘000 tons)
Production Exports Consumption
2007 180 168 2
2008 720 725 5
2009 1180 1150 20
2010 2000 1410 590
2011 2500 1400 1100
Argentina produced about 1.2 million tonnes of biodiesel in 2009 virtually all of
which was exported and it is expected to produce around 2 million tonnes of
biodiesel for the current year. Whereas for the year 2011 Biodiesel production is
expected to increase by 25% and it is estimated overall biodiesel production will
stand 2.5 million by Argentina alone. A brisk market for plant based fuels in
European Union countries has seen Argentina's exports increase more than fivefold
and country is now one of the biggest providers of Bio-diesel.
Source : USDA, Oil World, NB Research
Source : USDA, Oil World, NB Research
Source : USDA, Oil World, NB Research
0
500
1000
1500
2000
2500
3000
2007 2008 2009 2010 2011F
In ('
000
tons
)
Produc�on Exports Consump�on
Argetina’s Biodiesel consumtion
likely to doubled for 2011
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Rising South America’s Biodiesel demand
Argentina's biodiesel law is not expected to dent fast growing and shipment of
fuels will rise further in spite of vast new domestic market. Producers have enough
installed capacity to meet the needs of both the internal and export market. Exports
should rise to about 1.4 million tonnes this year as compared to 1.2 million
tonnes last year.
Increasing global output of biodiesel is likely to restrain soyoil exports this year
by the top supplier United States, Brazil and Argentina.
Insipte of posting a record high soy oil production for 2009/10 followed by
2010/11, the export are likely to witness only mild improvement for the current
year mainly backed by robust Bio-diesel domestic as well as international demand.
Source : USDA, Oil World, NB Research
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011F
In ('
000
tons
)SA Soy oil exports SA Soy oil usage for Biodiesel
SA total Soy oil consump�on
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EU's increasing appetite for Edible oils.
EU's usage of edible oils has increased on consistent basis in past decade. Its
domestic production of edible oil is likely to decline by 0.4 million tonnes against
increase in edible oil consumption of roughly around 3 million tons. After almost
8-9 year we are likely to witness a drop in production of Edible oil from EU in the
year 2010/2011.
EU’s Edible oil Production & Consumption
EU's consumption for various is oils for 2010/2011 are as follows:
¢ Consumption of Rape oil is likely to be 10.05 million tons.
¢ Consumption of Palm oil is likely to be 6.45 million tons.
¢ Consumption of Sunoil is likely to be 3.675 million tons.
¢ Consumption of Soybean oil is likely to be 3.21 million tons.
The huge gap between EU's domestic production and its consumption for 2010/
2011 for Edible oils is likely to be fulfilled by record large imports of 9.7 million
tons during 2010/11.
EU’s Edible oil imports
7000
9000
11000
13000
15000
17000
19000
21000
23000
25000
2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011F
In ('
000
tons
)
Total Edible oil Usage Total Edible Produc�on
Source : USDA, Oil World, NB Research
Source : USDA, Oil World, NB Research
0
2000
4000
6000
8000
10000
12000
0
1000
2000
3000
4000
5000
6000
2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011F
In ('
000
tons
)EU
's t
otal
Edi
ble
oil i
mpo
rts
In ('
000
tons
)
Oil, Coconut Oil, Olive Oil, Palm Oil, Palm Kernel
Oil, Rapeseed Oil, Soybean Oil, Sunflowerseed Eu's total edible oil imports
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EU's imports of Edible oil is likely to be record high for the year 2010/2011 as it
needs to bridge the ever increasing gap between its domestic production and its
overall edible oil consumption. The increase in EU's edible oil consumption is
mainly attributed towards its increasing Bio-diesel appetite which immerges
primarily from countries like Spain, France, Germany and Italy. They not only
produce Biodiesel but they are also one of the largest Biodiesel importers from
Argentina.
EU’s Rape oil consumption
EU's usage of rape oil for Biodiesel was roughly around 6.6 million tons in the
year 2009/10 against 5.7 million tons for the year 2008/09. Going forward for
the year 2010/11 we expect EU's usage of Rape oil for production of Bio diesel
will rise to the levels of 6.8 million tons. Overall consumption of Edible oil for
production of Bio diesel would increase to 10.85 million tons up 0.96 million
tons from previous years. EU's usage of Edible oil for Biodiesel production is
expected to be seen at record high levels.
EU’s Edible oil usage for Biodiesel
EU’s Edible oil imports to revive
forced by lower domedtic
producyion
0
2,000
4,000
6,000
8,000
10,000
12,000
2001/2002 2003/2004 2005/2006 2007/2008 2009/2010
In ('
000
tons
)
Industrial Usage Food Usage
Source : USDA, Oil World, NB Research
Source : USDA, Oil World, NB Research
0
2000
4000
6000
8000
10000
12000
0
1000
2000
3000
4000
5000
6000
7000
8000
2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011F
In ('
000
tons
)EU
's t
otal
Edi
ble
oil u
sage
for
Bi
odie
sel p
rodu
c�on
In ('
000
tons
)
Oil, Coconut Oil, Palm Oil, Rapeseed
Oil, Soybean Oil, Sunflowerseed Total Usage of Edible oil for Biodiesle
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Consumption of Edible oils growing as ever in China
China continues to grow strongly and its consumption of vegetable oils will
continue to surpass normal growth as per the expectation. China's imports of
soybeans as well as of palm oil will continue to be strong for the years to come.
China's recent step to start its trade with Argentina after a ban of almost 8-9
months is likely to step up China's imports of soy oil from Argentina. Moreover
China's Edible oil imports are likely to revive this year after its first ever bleep in
imports witnessed in the year 2009/10. At the same a decrease in imports of
edible oil for the year 2009/10 was not on account of decrease in demand from
China's, rather the fact that China was more interested in importing oilseeds and
then crush them, which in the end proved out to be a nullifying impact. Overall
consumption of edible oils by China remained robust for the year 2009/10. For
the year 2010/11 China's import of Edible oil is likely to be 10.85 million tons at
record high levels against 9.4 million tons in 2009/10.
China’s Edible oil imports
China's consumption of edible oils is likely to remain robust with its trend upwards.
China's consumption of edible oil has witnessed a CAGR of 9.6% since last
decade. For the year 2010/10 we expect China's consumption of edible oils to
reach the record high levels of 34 million tons witnessed by no other country.
China's consumption alone comprises more than 20% of world edible oil
consumption.
Source : USDA, Oil World, NB Research
0
2000
4000
6000
8000
10000
12000
0
1000
2000
3000
4000
5000
6000
7000
8000
2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011F
In ('
000
tons
)Ch
ina'
s to
tal E
dibl
e oi
l im
port
s
In ('
000
tons
)
Palm oil Palm kernel oil Rape oil Soy oil Sun oil Total Edible oil imports
China’s Edible oil imports to
cross 10 million tons mark
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China’s Edible oil consumption
Till the year 2008/09 China's incremental consumption of Edible oil was roughly
in the range of 1-1.5 million tons per year. In the year 2009/10 China's incremental
consumption of all these major oils & fats increased by 4.25 million which we
underestimated to be around 2 million tons in our previous report. For the year
2010/11 we expect incremental consumptions of all the major oils & fats by
China is likely to be a tad lower than 5 million tons.
China’s incremnetal consumption of Edible oils
China’s per capita conumption of Edible oils
Source : USDA, Oil World, NB Research
0
5000
10000
15000
20000
25000
30000
35000
40000
0
2000
4000
6000
8000
10000
12000
14000
2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011F
In ('
000
tons
)Ch
ina'
s to
tal E
dibl
e oi
l con
sum
p�on
In ('
000
tons
)Palm oil Co�onseed oil Peanut oi Rape oil Soy oil Total Edibel oil consump�on
Source : USDA, Oil World, NB Research
0
1000
2000
3000
4000
5000
6000
2001/2002 2003/2004 2005/2006 2007/2008 2009/2010
IN ('
000
tons
)
China’s incremnetal
consumption of Edible oils on
the rise
Source : USDA, Oil World, NB Research
0
5
10
15
20
25
30
2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011F
In (K
gs/p
erso
n)
Per Capita Consump�on
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Per capita consumption for edible of China has probably grown even at a much
faster throughout the decade. This has even got to do with overall growth story of
China, as the economy develops so does improves the level of income.
India just a step behind China
The south west monsoon was in ample for the current year mainly on the back of
La Nina which helped the revival of Indian monsoon which was erratic last year
caused by El Nino. This overall monsoon was reported above average as per
IMD which in turn helped the sowing of the Kharif oilseeds. Oilseeds acreage for
the current year was seen at 175.35 million ha against 174.13 million ha in 2009.
Despite of a minuscule increase in overall acreage of Kharif oilseeds the production
is likely to turn higher as compared to that of the previous because of higher
yields helped by above average rainfall.
India's Edible oil production (‘000 tons)
2010-11F 2009-10E 2008-09 2007-08 2006-07 2005-06
Soybean oil 1150 950 1200 1445 1280 1140
Cotton oil 1100 1050 1000 1050 920 755
Groundnut oil 550 425 650 900 580 950
Sun oil 285 425 500 550 580 620
Rape oil 1950 1950 1800 1700 2150 2250
Sesame oil 160 160 150 150 120 125
Coconut oil 425 425 390 380 380 400
RiceBranoil 730 700 740 720 680 660
Others 300 250 250 250 225 200
Total 6650 6335 6680 7145 6915 7100
But the main problem which still exists is India's yield of all the nine oilseeds
produced is lowest among all the major oilseeds producers in the world. India
will gradually become an importer of all foodstuffs and especially edible oils in
years to come. For the current we expect India's crushing of oilseeds to at record
quantum mainly on the back of robust export demand of Oil meals coupled with
decent and gradual increase in domestic oil meals for the poultry industry.
Moreover the crush margins have been positive on consistent basis since last
three-four month motivating. Higher crushing of Oilseeds is likely to increase the
overall domestic production of Edible oil for the current oil year. Such a
development might lead to reduction in pace of imports of Edible oil by India for
Source : USDA, Oil World, NB Research
India’s Edible oil production to
witness a revival
November 1, 2010
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the current year, but this will be only on temporary basis as there is no surety how
actually the Rabi oilseeds production and next year's Kharif oilseed will turn out.
This year itself there has been talks about the fact that the bean size has been
smaller as compared what was estimated which is likely to affect the actual yield
of Soybean and the overall crop might shape up a tad lower as compared to
traders anticipation. All in all India's 60% or more Edible oil requirement can
only be satisfied by imports and we are likely to remain net importers of all the
major food stuffs.
India's Edible oil imports (‘000 tons)
2005-06 2006-07 2007-08 2008-09 2009-10E 2010-11F
Soy oil 1770 1335 750 990 1691 1245
Palm oil 3000 3665 5270 6770 6512 7248
Sun oil 90 200 30 590 628 650
Laurics 240 200 200 240 250 230
Others - - - 50 50 50
Vanaspati 300 215 50 - - -
Total 5400 5615 6300 8640 9131 9423
India's inefficiency with respect to increase its oilseeds production and ever
increasing its appetite for food grains is likely to force India to again import
record large quantity of food grains for the year 2010/11. India's thirst for edible
oils is increasing at a very rapid pace and still continues to grow. India is expected
to import 9.4-9.5 million tonnes of edible oils for the year 2010/2011. Palm oil
expected to account roughly 7.2-7.3 million tones where as Soy oil shipments are
likely to be lower at 1.2-1.5 million tons mainly on the back of revival in domestic
production of Soy oil for the current year.
India’s Edible oil imports
Source : USDA, Oil World, SEA, NB Research
India’s Edible oil imports to
surpass expectations
Source : USDA, Oil World, SEA, NB Research
010002000300040005000600070008000900010000
0
1000
2000
3000
4000
5000
6000
7000
8000
2005-06 2006-07 2007-08 2008-09 2009-10E 2010-11F
In ('
000
tons
)In
dia'
s tot
al E
dibe
l oil
impo
rts
In ('
000
tons
)
Soy oil Palm oil Sun oil Laurics Others Vanaspa� Total
November 1, 2010
16 www.nirmalbang.com
India’s Edible oil consumption (‘000 tons)
2005/06 2006/07 2007/08 2008/09 2009/10E 2010/11F
Soybean oil 2850 2550 2100 2150 2710 2750
Cotton oil 720 900 1000 1000 1050 1125
Gn oil 1020 580 880 650 450 635
Sun oil 680 780 580 1050 852 750
Rape oil 2250 2150 1650 1800 2250 2370
Sesame oil 160 120 150 150 160 160
Palm oil 3150 3925 5090 6530 7000 7320
Laurics 450 600 600 600 650 650
RiceBranoil 650 680 720 740 700 740
Others 350 225 225 250 250 250
Total 12280 12510 12995 14920 16072 16750
Pop.Mlns 1100 1120 1140 1160 1175 1203
Per cap kg 11.16 11.17 11.4 12.86 13.28 13.92
India's consumption of edible oils is likely to increase by almost 5% during the
current year. India's overall edible oil consumption is likely to hit the levels of
16.7 million tons at record high. Its per capita consumption of edible oils is likely
to be 13.92 kg/ person for the year 2010/2011 still half of that of China. India's
consumption of edible oils is expected to grow in years and may even surpass
China by next decade.
India’s Edible oil S&D’s (‘000 tons)
2006/07 2007/08 2008/09 2009/10E 2010/11F
Opening Stock 850 750 1025 1250 975
Production 6,915 7,145 6,680 6915 7100
Imports 5,615 6,300 8,640 9131 9423
Consumption 12,510 12,995 14,920 16072 16750
Exports 120 175 175 250 200
Ending Stocks 750 1025 1250 975 548
Source : USDA, Oil World, NB Research
Source : USDA, Oil World, SEA, NB Research
November 1, 2010
17 www.nirmalbang.com
World’s Edible oils S&D’s
Before discussing the world demand and supply scenario let us discuss various
events which took place which hampered world oilseeds production.
The first to come was the cruel and unfortunate drought in Russia and in parts of
the Ukraine. The after effect of that drought is still not over and the repercussions
of the same will stretch well beyond this harvest and into the next season. This
drought has actually affected the yield of sunseed crop grown widely across both
Russia and Ukraine and expected to reduce the yields by a minimum of 15-18%
from that of 2009. Despite of record plantings for sunseed in the current year we
are expected to see lower production for the second year in a row.
Another major factor that hampered the supplies was, CPO production which
was hampered by El Nino till May 2010 and now its so called brother the La
Nina too has not too proven of any relief. Malaysia's CPO production improved
a little and it exceeded our previous expectation of 17.2 million tons and actual
production will roughly be around 17.6 million tons. But the same was set off by
Indonesia's CPO production from Indonesia. As the outcome of CPO production
in Indonesia has been worse than expected.
Indonesian CPO production has disappointed and there is a greater consensus
now that growth will be just 500,000 tonnes for 2010. Hence, for 2010, there will
be very little or no growth in CPO production. All in all the supplies of CPO for
2009/10 increased merely by a million ton against our previous estimates of 0.8
million tons.
A handsome increase in production was witnessed by soy oil. Record large soybean
crop in 2009/10 coupled with record large crushing's of soybean crop lead to
ample supplies of soy oil for the year 2009/10. Soy oil production increased by
2.2 million tonnes against our expectation of 1.65 million tons in our previous
report.
Moreover for the current year as well soy oil supplies are likely to be ample
backed by some handsome crushing activities. But at the same time it has become
difficult to actually estimate the actually production one year in advance especially
with the current ongoing La Nina scenario. The event has so far caused great
problems with respect to South America's soybean production especially in Brazil.
The same is been discussed in detail in the beginning of the report.
November 1, 2010
18 www.nirmalbang.com
We expect the production of soy oil will be a tad higher in 2010/11 despite of
lower production mainly on account of higher crushing's to fulfill the ever growing
world Edible oil demand. The combined deficit of rape oil and sun oil of 1.46
million tons will have to be fulfilled by soy oil to a certain extent.
Therefore, we can summarize Global Incremental Supply of Edible
oils as follows (‘000 tons)
Oct 08 to Sept09 Oct 09 to Sep 10 Oct 10 to Sep 11
Soya oil - 1500 + 2200 + 2000
Rape oil + 1800 + 1300 - 1160
Sun oil + 2000 - 1000 - 300
Gn oil - 200 - 200 + 200
Cotton oil - 200 - 200 + 100
Palm oil + 1500 + 400 + 1800
Lauric oils + 100 + 200 - 250
Total Increase + 3500 + 2900 2550
For the third consecutive we are likely to witness a drop in incremental production
of all vegetable oils for the year 2010/11. This was primarily caused by an
immense drop in sun oil and rape oil supplies.
World Demand
During the year 2008/09 the demand for edible oils expanded by 4.5 million
tons. While during 2009/10 the incremental demand for edible oils further
increased to 6 million tons mainly on the back of industrial usage of edible oils by
US, Brazil, EU and Argentina. Moreover the food demand from developing
nations like China, India, Indonesia and Brazil was seen higher.
World disappreance of Edible oil
Weather concerns around the
world causing third consecutive
decline in incremental production
of Edible oils
Source : USDA, Oil World, NB Research
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
0
20000
40000
60000
80000
100000
120000
140000
160000
1984/1985 1989/1990 1994/1995 1999/2000 2004/2005 2009/2010
In ('
000
tons
)A
nnua
l cha
nge
in W
orld
Ed
ible
oil
dem
and
Wor
ld's
dis
appe
ranc
e of
Edi
ble
oils
In ('
000
tons
)
Annual Change Total Disappreance
Source : USDA, Oil World, NB Research
November 1, 2010
19 www.nirmalbang.com
For the year 2010/11 we expect a further expansion in edible oil demand. As we
expect incremental demand for edible oils is likely to be minimum 7.2 million
tons primarily for two reasons. A further enhancement in these energy mandates
will force the countries such as Argentina, Brazil and EU to use more edible oil to
satisfy their thirst for Biodiesel. For the year 2010/11 we expect usage of edible
oils in production of Biodiesel to expand roughly by 3.2 million tons. And the
rest of the expansion is likely to be witnessed from the food industry especially
from developing nations such as China, India, and Indonesia.
Incremntal Demand-Supply dynamincs (‘000 tons)
Oct 08 to Sept09 Oct 09 to Sep 10 Oct 10 to Sep 11
Supply + 3500 + 2900 +2550
Demand +4500 +6000 +7200
Surplus (Deficit) (1000) (3100) (4650)
For the second year in a row an increased edible oil production is not even sufficient
to fulfill increased food demand for vegetable oils. So even if any of these countries
Argentina, Brazil and US withdraws their Bio-diesel mandate won't help as carry
forward stock is likely to witness a further trimming.
World’s ending stocks of Edible oils
All these development is likely to further trim World's edible oil stocks which
were already tight during 2009/10.
This situation is not tenable and something must give during the year. Our guess
is that prices must rise in order to make bio diesel uncompetitive in some
discretionary markets and to curb food demand. It also means that Oil Share will
have to rise dramatically in order to stimulate the crushing of soybeans.
Source : USDA, Oil World, NB Research
Incremental demand &
production deficit widens further
Source : USDA, Oil World, NB Research
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
0
2000
4000
6000
8000
10000
12000
14000
2001/2002 2003/2004 2005/2006 2007/2008 2009/2010
In ('
000
tons
)
Total edible oil stock Stock to usage ra�o
World ending stock of Edible oil
witnesses further trimming
November 1, 2010
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Big Acreage Battle Brewing for 2011/2012
With little land seen coming out of the Conservation Reserve Program and many
former farms seeing their land turned into sub-divisions, where will this acreage
come from?
There appears to be a big acreage battle looming this upcoming year with very
attractive forward corn, wheat, and soybean prices. Which one will get short end
of the stick?
Acreage of 8 major grains in the US
This factor may turn out to mother all to create further bullishness in entire
oilseeds sector. As US is facing great difficulties with respect to their corn crop. A
reduced world corn production coupled with robust feedstock demand has pushed
world corn stock to 4 year low. The crux of the matter is that U.S. corn ending
stocks, and ending stocks as a percent of consumption are about the second lowest
ever, leading to forecasted record high prices.
If this situation is not to persist or even worsen next year, U.S. planted corn
acreage for next year is going to have to balloon to perhaps even higher than the
93.5 million than in 2007, the largest figure since 1944.In 2007, corn acreage
increased 5.2 million from the prior year and this single-handedly accounted for
almost all of the acreage increase for the 8 major crops compared to the prior
year. Corn accounted for 37.8 percent of all the planted area, the highest proportion
in years. While forward corn prices are very attractive, wheat and soybean values
are also very attractive. And there's also cotton, which has moved to all-time
highs and crop will almost certainly see higher plantings this coming spring.
Source : USDA, DTN Progressive farmers, NB Research
25%
27%
29%
31%
33%
35%
37%
39%
240000
245000
250000
255000
260000
265000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
In ('
000
hect
ares
)
Acerage of 8 major crops Cron %
November 1, 2010
21 www.nirmalbang.com
Some analysts estimate the area planted for all major crops will have to increase
by 8 to 10 million acres in order to prevent ending stocks for some of them from
falling to intolerably low levels.
An acreage expansion of that magnitude, however, has not been seen since 1996
when then record high corn and wheat prices saw plantings rise by 6.1 and 7.8
million acres respectively, accounting for almost all of the 14.8 million rise in
area of the 8 major crops. Now looking at the wheat crop which is expected to
lower this led by the worst drought in Russia reducing its production to 42 million
tonnes against 66 million in 2009/10. Due to such a massive damage of the wheat
for the current year, Russia's government was forced to ban the export of wheat in
order to fulfill its domestic requirement (third largest export of wheat).
Such a development has brought all attention towards US wheat exports. US
wheat exports are expected to be increase roughly by 50% this in order to satisfy
world feedstock demand. An increase in exports by almost 50% is likely to trim
US wheat stock by 20-25% for the year 2010/2011.
Putting together all these factors we conclude that soybean prices need to post
smart gains to attract attention of farmers for sufficient and to remain in
competition with its peer grains acreage for the year 2011/12.
November 1, 2010
22 www.nirmalbang.com
Disclaimer: This document has been prepared by N.B. Commodity Research (A division of
Nirmal Bang Commodities Pvt Ltd). The information, analysis and estimates contained herein are
based on N.B. Commodities Research assessment and have been obtained from sources believed
to be reliable. This document is meant for the use of the intended recipient only. This document,
at best, represents N.B. Commodities Research opinion and is meant for general information only.
N.B. Commodities Research, its directors, officers or employees shall not in any way be responsible
for the contents stated herein. N.B. Commodities Research expressly disclaims any and all liabilities
that may arise from information, errors or omissions in this connection. This document is not to
be considered as an offer to sell or a solicitation to buy any securities. N.B. Commodities Research,
its affiliates and their employees may from time to time hold positions in securities referred to
herein. N.B. Commodities Research or its affiliates may from time to time solicit from or perform
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Kunal Shah
Research Head
+91 22 3027 1522
Anuj Agarwal
Research Analyst -Commodities (Oil & Oilseeds)
+91 22 3027 1520