Global Sunflower Market Trends
Monday, November 15, 2004
filed under: Utilization/Trade
The following is excerpted from the presentation “World outlook and future development of sunflower markets around the world,” given by Larry Kleingartner, executive director of the National Sunflower Association, to the 16th International Sunflower Conference that was held in Fargo ND in August of 2004.
Sunflower oil continues to be the fourth largest vegetable oil produced and used in the world after soybean, palm and canola. However, in the last 10 years sunflower and canola have lost total world market share to soybean and palm oils. Both of those oils have enjoyed rapid growth based on expanding Southeast Asian palm plantations and a world soybean market dominated by protein demand.
There has been a shift in the world’s sunflower production away from Argentina, France and U.S. to East Europe, Russia and Ukraine. In Argentina and the U.S. the competition from Roundup Ready® soybeans has eliminated millions of sunflower acres and moved the remaining acres into drier regions. In 1998, Argentine farmers planted nearly 10 million acres of sunflower. In 2004, that number was cut in half. Much the same occurred in the U.S. In France, changes in farm programs equalized subsidy payments between grains and oilseeds, which resulted in a decline in sunflower plantings.
In the meantime, some of the traditional sunflower oil buying nations in North Africa moved from government buying agencies to private sector buying. That prompted more buying on price as opposed to quality. This has lead to an export market based purely on price for larger volumes of oil. The cheapest world oils are palm and soybean.
In order to compete for volume, an oil like sunflower has to be priced at the soybean level to achieve consistent sales. That kind of pricing structure simply doesn’t translate to value on the farm. Thus, world exports of sunflower seed and oil have declined over the last 10 years. That situation is expected to continue into the next decade as well. More sunflower oil will be consumed in the countries that produce it. Or, a select market will be developed in key countries that are able and willing to pay reasonable premiums over soybean and palm oil.
In the U.S., enhanced sunflower oil value has been achieved through oleic types such as NuSun™ and high oleic. Traditional linoleic sunflower oil will continue to be produced for specific domestic markets, but the huge export volumes of the early 1990’s will not be available. Under the present scenarios, sunflower cannot be competitively produced and be priced at soybean/palm oil values.
There is a huge divergence between world oil prices. For example, the price of Southeast Asian crude palm oil averages less that $400 per metric ton (MT). Contrasting this is virgin olive oil produced in Spain at $2,700 MT. Both oils can be used interchangeably for basic cooking.
Does it make any market sense for world sunflower producers to target and compete with cheap oils as they have in the past? The obvious answer is a resounding ‘no’ if farmers are expected to continue to produce sunflower. It simply can’t be done at palm and soybean oil values. The sharp decline in sunflower acres in Argentina and the U.S. in the last four years is clear evidence of that.
Looking at the next 10 years
Most projections point to palm oil becoming the most dominant vegetable oil produced and consumed in the next 10 years. Also, the world oil share for sunflower and canola may increase slightly, while that of soybean may decline slightly.
Per capita consumption of oil will increase faster in the next 10 years than it has in the last 10 years. This is due to areas of the world such as the former Soviet Union, which sharply lowered per capita consumption during the 1990s when those economies were being restructured.
It is not likely that additional per capita growth will occur in the U.S., Europe, Japan and Taiwan. But growth will occur in Russia, India, China and others. Russian consumption is already increasing as the economy recovers. Although per capita vegetable oil consumption in India and China has increased sharply in the last several years, by world standards their per capita use is low. Both have significant populations with growing economies that will stimulate further vegetable oil demand.
Meal/protein demand will continue to be strong as well, but is expected to lag the extremely strong growth of the 90’s. On a percentage growth basis, oil demand may outpace meal demand over the next 10 years. That, of course, would be good news for high oil content seeds like sunflower.
Although great strides have been made in vegetable oil as a fuel supplement, that market is expected to remain relatively small. The success of bio-diesel will continue to depend on government tax/subsidy incentives. This is the situation in the European Union where most of the activity has occurred. A fuel market provides good opportunities for ‘spent oils’ or vegetable oils that need to be discarded after use. This market will be a ‘cheapest oil’ source market.
Sunflower oil will have to sell at premiums over soybean and palm oils in order to produce sufficient quantities of the crop. In the last 10 years, world sunflower oil prices have averaged about $100 MT over soybean oil values. The range is from $20 to $200 MT. It would appear that a minimum of $100 MT premium over soybean oil values will be necessary to entice farmers to produce the crop.
The production advantages of soybean and most other crops are considerable given herbicide choices alone. A sunflower strategy to compete internationally with soybean and palm oils for market share on price is over. Higher values have to be generated on quality factors.
Then there is the question of GMO or transgenic sunflower. Sunflower is one of the few major crops in the world that does not have this technology. Although there continues to be resistance to GMO crops in some parts of the world, clearly this technology will drive crops in the next 10 years to a larger degree than it has in the past. Sunflower must be part of this technology in order to be competitive.
Sunflower will continue to be an important oilseed in the future. But challenges exist. Private and public sector investment in research appears to be slowing with more money going to the large acreage crops. Continued progress in disease resistance (Sclerotinia) is mandatory. A transgenic approach would be the quickest. Yields and oil content must continue to increase. And, finally the market must be given additional value through desirable traits such as NuSun and high oleic in order to compete at the producer level.