Edible Oils at a Crossroads—How Traders Can Profit Amid Global Turbulence

Welcome to the Globoil Post. In this edition, we bring you exclusive insights from Aashish Acharya, a seasoned expert with over 28 years in international agri-business and commodity trading. As the Vice President and Head of the Soft Oil(s) Division at Patanjali Foods Limited, Aashish unveils transformative trends and hidden opportunities that could redefine the global edible oil market by 2025. If you're a trader or investor looking to capitalize on these shifts, this is the moment you've been waiting for.

How are current global economic conditions and geopolitical factors impacting the international trade of edible oils, and what strategies can traders employ to navigate these challenges?

Global Economic Conditions:

- Slow economic growth: The global economy is currently experiencing a slowdown, which might affect demand of edible oils especially from far east, recent Chinese economic data are not encouraging & at the same time energy demand is also reflecting the same trend, however India is the major silver line in world economy.

- Inflationary pressures: In recent years various Central banks have considered a path of higher rates to control inflation, which has impacted trade and economic growth. Some central banks have already started, and others are in line to reduce rates to boost and support economic activities and growth.  This will provide cushion for edible oil consumption. 

Geopolitical Factors:

- Trade Disputes: Ongoing trade dispute and conflicts, such as the Russia-Ukraine, Middle East war and recent China-Canada trade dispute alter world trade flows especially for oilseeds and edible oil. On-going geopolitical issues are impacting energy & metal markets thus having an indirect impact on edible oil prices.

- Supply chain disruptions: Geopolitical events can lead to supply chain disruptions, affecting the availability and price of edible oils. The risk premiums for bulk vessels in Red Sea channel increased considerably, which has not only impacted insurance and freight cost but also extended supply chain lead time by 2-3 weeks.

Strategies for Traders:

- Diversify products and markets: Traders can diversify their product offerings and explore new markets to reduce dependence on specific markets or products for both origination and destination.  Value addition is always a must for getting edged in competitive business environment.

- Invest in logistics and supply chain management: Improved and efficient logistics and supply chain management certainly help traders to navigate disruptions and ensuring timely delivery of edible oils / oilseed. Quick turnaround and just-in-time approach of inventories always reduce logistics and financing costs. 

- Monitor market trends and prices: Well, informed with market information’s and price trends can support traders to take informed decisions and adapt to dynamic markets Understanding of edible oil market requires good study of macro and micro markets.

- Develop risk management strategies: Traders are supposed to develop proper risk management strategies, such as hedging the exposure in the future markets, to mitigate the impact of price volatility and counter party risks. Unfortunately, futures contracts are not available in domestic exchanges to hedge their price risk. When it comes to hedge price risk in overseas exchanges like CBOT and BMD, price correlation and basis movement is quite challenging. Develop product portfolio and value addition is another strategy to mitigate the price risk. 

- Focus on sustainability and quality: Traders can focus on sourcing high-quality and sustainable edible oils to meet growing consumer demand and differentiate themselves in the market

What are the key trends and developments you foresee in the global edible oil market through 2025, and how should traders position themselves to capitalize on these trends?

This edible Oil year 2024-25 is going to be unique, unlike the last few years, in terms of market dynamics and trade-related uncertainties. Broader macro issues along with government policies at both origination and destination impacting edible oil market dynamics. Challenging for the players to make the right call on the market, considering various factors i.e likely trade war, MSP operations for oilseeds, lower soft seed crops in Black Sea region and Europe, and potential increase in soya crop in both Argentina and Brazil. At the same time forthcoming change in the biodiesel credit policy in the US and availability of alternate and competitive feed stocks. Increased Bio Diesel mandate mainly in the Indonesia and Brazil, growth in Palm oil production Malaysia and Indonesia, performance of world key economies and many more. But for the Indian consumers, spreads between competitive edible oils prices will be important factor, which will decide product flow going forward. All such key factors may lead to unprecedented volatility in edible oil prices. 

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Traders can position themselves - Diversifying their product offerings by adding healthy oil, investing in oilseed production: Expanding their global reach to take well informed decisions.

- Develop robust risk management strategies to mitigate the impact of price volatility on their business.

- Adapting new technologies: invest in technology to reduce costs and make products more affordable to consumers. 

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What are the major growth opportunities for the edible oils sector in emerging markets, and which regions are expected to show the most significant growth through 2025?

Depend upon leading economies, the edible oils sector in emerging markets is positioned for substantial growth, driven by various factors like government policies, investment in production, efficient supply chain, innovation in product diversification, health and wellness trends, population growth & rising income levels, worth to mention vegetable oil consumption as feed stock in biodiesel consumption in many countries.  

Regions Expected to Show Significant Growth:

1. Asia-Pacific:
   • China and India: These two countries, with their large demographic capital, rising incomes, and shifting dietary habits, are expected to experience strong growth. India is poised for significant expansion due to its vast population and growing middle class. Indian economy is booming hence increase in consumption very likely, however clouds on Chinese demand considering recent economic reports.
   • Southeast Asia: Nations like Indonesia, Malaysia, and Thailand, which are major producers and emerging as the major producer and consumer of biodiesel using palm as a feed stock.
2. Africa:
   • West and East Africa: Many countries in Africa continent are leading this growth, spurred by rapid population increases, urbanization, and rising incomes.
3. South America/Latin America:some text
   • Brazil and Argentina: These countries are major producers of Softoils however increase in biodiesel mandate leading the consumption of edible oils going into fuel.
4. Black Sea Region:
   • Countries in the region are world leading producer of sunflower oil, soyabean oil and rapeseed oils as growth in the production leading the narrow price with competitive oils giving opportunity to world consumer to afford the healthy sunflower oil however this year production is likely to reduce by 3.5 MM Ton.  

Summary:

The edible oils sector in emerging markets is set for significant expansion, driven by demographic capital, rising incomes, and changing dietary preferences and increase in Bio Diesel consumption. The Asia-Pacific region, especially China and India, is expected to lead this growth, alongside emerging markets in Africa. Innovations in product development and increased investments in production and infrastructure will further shape the sector’s future growth trajectory. However, Govt policies must be considered for deriving the price dynamics in a long run.

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