Global Oilseed Market Faces Uncertain Future Amid Volatile Prices

In this edition of Globoil Post, Nirav Desai, Managing Partner at GGN Research, delves into the complexities of the global oilseed market amid recent price volatility. Drawing on over two decades of expertise in the edible oils sector, Desai offers a comprehensive analysis of the forces driving market fluctuations—from adverse weather conditions and geopolitical tensions to shifting government policies and global demand trends. His insights provide a roadmap for understanding how the market might evolve through the end of 2024, shedding light on the challenges and opportunities ahead for stakeholders in the industry.

1. In light of the recent fluctuations in global oilseed prices, what key factors do you believe are driving these changes, and how do you anticipate the market will evolve through the end of 2024?

Recent fluctuations in global oilseed prices are influenced by several key factors:

1. Weather Conditions: Dry weather in Russia, Ukraine, and the EU is worsening sunflower seed and rapeseed production. Below-normal precipitation throughout July across most Canadian prairies has resulted in 59% of the region being classified as Abnormally Dry, affecting canola production. Heavy rains and flooding in Southeast Asia are disrupting palm oil harvesting, while prolonged dry spells are reducing yields. Argentina's severe droughts during the 2022-23 season reduced soybean production by almost half. These adverse weather conditions in key oilseed-producing regions are tightening global supplies and increasing price volatility.
2. Geopolitical Tensions: The ongoing war between Russia and Ukraine has intermittently disrupted sun oil and other agricultural exports from the Black Sea region. Sanctions on Russia by various countries have exacerbated the global food crisis by restricting trade-related policies. The spreading conflict between Israel and Hamas is deepening Middle East tensions, affecting oil prices, bonds, and inflation risks. Political turmoil in Bangladesh is expected to disrupt trade with India and the world, including oil meals export. The trade war between the USA and China involves both countries imposing tariffs, affecting global trade dynamics.
3. Economic Conditions: The global economy is still reeling from the negative impacts of excessive government debt, insufficient economic policies on trade and growth, political instability, broken immigration policies, and ongoing conflicts. US and EU recession fears are rising, with the FED maintaining high-interest rates resulting in austerity and a tight monetary policy. The world's three largest economies are stalling, contributing to a gloomy and uncertain economic outlook and rising food insecurity.
4. Government Policies: India continues to import edible oils at lower tax rates to control prices; on the other hand, the government is committed to providing remunerative prices to farmers. Argentina's weakening currency is widening the gap between the blue dollar and government exchange rates, causing farmers to hold back soybean. Indonesia plans to increase its biodiesel mandate to B40 next year, while Argentina has increased its mandate to 7.5% with a target of 15%. The US and Brazil plan to boost biofuel mandates over the next three years. Subsidies, tariffs, and trade agreements significantly impact prices.
5. Global Demand: Increasing demand from emerging markets and shifts in consumer preferences drive price changes.
6. Supply Chain Issues: Tensions in the Red Sea have ripple effects on maritime shipping, significantly increasing transit times and operational costs. Labor strikes at Argentine ports are causing congestion, delaying shipments, and trade route disruptions due to the Russia-Ukraine war, affecting the timely availability of oilseeds and influencing prices.

‍Market Evolution through 2024:

• Favourable crop prospects in the USA and market expectations for record yields, with large global soybean supplies.
• Large soybean supplies may be offset by lower sunflower and rapeseed supplies.
• Relatively large demand for soy oil will generate surplus soymeal, improving the oil share compared to the meal share.
• Stagnant palm oil production growth.
• Uncertainties of Argentine soybean and products export supplies due to government policies.
• Ongoing geopolitical tensions and potential climate change could still cause fluctuations.
• Monitoring government policies, especially related to biofuels, trade, and tariffs, will be crucial.

Overall, while there may be some price stabilization, the market is likely to remain sensitive to weather, geopolitical, and economic factors through the end of 2024.

2. With your background in conducting extensive market research, what emerging trends in consumer behaviour do you foresee impacting the global demand for pulses and oilseeds, and how should producers adjust their strategies to meet these new demands?

Emerging trends in consumer behaviour are set to significantly impact the global demand for pulses and oilseeds. Here are some key trends and strategic adjustments producers should consider:

Emerging Trends in Consumer Behaviour:

• Health and Wellness: Increasing awareness of health and nutrition is driving consumers towards healthier products.
• Sustainability: Consumers are increasingly concerned about the environmental impact of their food choices.
• Ethical Eating: There is a growing preference for ethically sourced and fair-trade products.
• Convenience: Busy lifestyles are increasing the demand for ready-to-eat or easy-to-prepare food products.
• Dietary Preferences: The popularity of vegan, vegetarian, and flexitarian diets is rising as alternatives to meat.
• Food Trends: Pulses and oilseeds are becoming more popular in global cuisines and food trends, such as smoothies, snack bars, and ethnic dishes.

Strategic Adjustments for Producers:

• New Products: Create and sell products that are healthy, sustainable, and ethically sourced.
• Sustainable Farming: Use eco-friendly farming methods like crop rotation, organic farming, and water-efficient irrigation.
• Transparency: Provide clear information about where and how products are made.
• Convenient Products: Offer easy-to-use products like pre-cooked beans, pulse flours, and oilseed snacks.
• Education and Marketing: Inform consumers about health benefits through marketing and collaborations with health influencers and chefs.
• Local Focus: Make products that suit local tastes and explore new markets with growing demand.
• Partnerships and Innovation: Work with food tech companies and researchers to create new products.

3. Given your interest in the African agricultural market, how do you see the pulses and oilseeds sectors developing on the continent, and what are the primary opportunities and challenges for African producers in the global market?

The pulses and oilseeds sectors in Africa have significant growth potential due to several factors:‍

Primary Opportunities:

• Rising Global Demand: There is an increasing global demand for pulses and oilseeds due to health, dietary, and sustainability trends.
• Favourable Climate: Africa's diverse climates are suitable for growing a variety of pulses and oilseeds, providing a competitive advantage.
• Government Initiatives: Many African governments are prioritizing agricultural development through subsidies, improved infrastructure, and access to finance.
• Technological Advancements: Adoption of modern farming techniques and technologies can increase yields and reduce production costs.
• Export Potential: Africa has the potential to become a major exporter of pulses and oilseeds, particularly to emerging markets in Asia and Europe.
• Value Addition: Processing pulses and oilseeds into higher-value products can increase profitability and create jobs.

Primary Challenges:

• Infrastructure Deficiencies: Poor transportation and storage infrastructure.
• Market Access: Limited access to international markets due to trade barriers, lack of market information, and stringent quality standards.
• Climate Change: Increasingly unpredictable weather patterns and climate change.
• Financing: Limited access to affordable financing for smallholder farmers.
• Knowledge and Training: Lack of knowledge and training in modern farming practices and sustainable agriculture.
• Pest and Disease Management: Limited access to effective control measures.

‍Strategic Recommendations:

• Infrastructure Investment: Improve transportation and storage facilities.
• Capacity Building: Provide training and support to farmers on modern and sustainable agricultural practices.
• Access to Finance: Develop financial products and services tailored to the needs of smallholder farmers, including microloans and insurance.
• Market Integration: Facilitate better integration into global markets through trade agreements, quality certification, and market information systems.
• Climate Resilience: Promote climate-resilient farming practices and invest in research.
• Value Chain Development: Encourage the development of local processing industries to add value to agricultural products.

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DISCLAIMER: this report is prepared by GG Patel & Nikhil Research Company (GGN). The information and opinions Contained in the document have been compiled from sources believed to be reliable. GGN does not warrant its accuracy, Completeness and correctness. Use of data and information contained in this report is at your own risk. This document is not, and should not be construed as, an offer to sell or solicitation to buy any commodities. GGN and its affiliates and/or their Officers, directors and employees may have positions in any commodities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such commodities (or investment).

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