Veg Oil Gains Respect As Energy Takes More Product
For those of us who have lived through years of surplus commodity production, it does not seem real to talk about long-term scenarios in which not all demand sectors can be supplied. But that was the theme of speaker after speaker at the recent Soya & Oilseed Summit held in Minneapolis, Minn., in October.
World oilseed production remains dominated by soybean. Yet soy is really a protein or meal seed. Meal has, for a long time, dominated the oilseed value share. But vegetable oil is gaining a lot more respect these days — which is important for high-oil content seeds like sunflower, canola, peanut and, of course, palm oil.
Part of the reason for the new-found respect for vegetable oils is the advent of biodiesel. Although biodiesel has not fared well in the United States to date, it has been successful in the European Union, Brazil, Argentina and other countries. While the amount of vegetable oil going into biodiesel is relatively small in comparison to food demand, it is enough to tip the scales on a generally tight supply/demand world balance sheet. Tight stocks-to-use ratios are common these days for most commodities.
Adding to the tight world oil balance is the fact that production of sunflower around the world will be unchanged to down slightly this year. The drought in Russia and the Ukraine that impacted wheat also took its toll on the sunflower crop. Combined, those two counties easily make up the largest segment of the world’s sunflower production. Overall, it appears that the Russian/Ukrainian sunflower crop will be down about 5% from last year while most other countries are about unchanged.
The decline in production of canola/ rapeseed is more drastic. World production is expected to drop by more than 6%, with the largest declines coming in Canada and the EU. The palm oil production increase will be moderate this year.
On the surface, these declines do not look large. But this has to be couched with significant increases in oil demand and declining world oil stocks. For the last three consecutive years, oil demand has outpaced production, resulting in tightening of world oil stocks.
Sunflower oil is the fourth most consumed oil in the world after palm, soybean and canola. Sunflower’s global market share of 8% has remained consistent over the past decade. However, soybean, cotton, peanut, olive and coconut have all lost share, while palm, canola and palm kernel have gained world market share.
Increased vegetable oil demand has been sparked by a dramatic rise in GDP and personal incomes in both India and China. The two countries have huge populations that continue to grow, and per-capita vegetable oil consumption has increased sharply as well. In addition to the EU 27, both India and China stand well ahead of other countries in vegetable oil imports — even though both countries are significant producers of most oilseeds as well.
The advent of biodiesel in the world market has tipped the vegetable oil supply/demand scales, according to Thomas Mielke, editor of Oil World and a speaker at the recent Soya & Oilseeds Summit. For the last several years, vegetable oil demand has been outstripping production — leaving stocks precariously low.
Mielke points to biodiesel mandates in the EU and other countries that are unsustainable. Both Argentina and Brazil have rapidly moved soybean oil supplies into biodiesel for cars and electricity generation, leaving less oil available for exports. Mielke predicts that the biodiesel portion of total world vegetable oil could reach 15% by 2015. Fifty percent of the new oil demand this year can be attributed to biodiesel mandates.
Meanwhile, the U.S. biodiesel industry continues to struggle to obtain congressional approval of a tax credit. It is estimated that 80% of the biodiesel capacity in the U.S. is idle. At the end of the day, Mielke fervently states, many biodiesel mandates around the world cannot be filled without seriously impacting human consumption.
Case for Higher Yields
Producing more vegetable oil quickly is dependent upon those oilseeds with high oil content — namely sunflower, canola and peanut. Peanut oil production has been on a decline and is not likely to rebound. World canola production has escalated sharply in the last 10 years, while sunflower increased at a slower pace. Soybean with 18% oil content cannot meet the challenge of quickly expanding demand. Palm oil, on a per-acre basis, can produce the most oil; but it takes five years from planting to harvest the first tonnage.
Increasing high-oil content oilseed acreage is limited by strong crop competition from grains and limited areas for expansion. Boosting yields may have the greatest potential to feed the increasing combination of demand for food and fuel.
Average U.S. sunflower yields have greatly outpaced yields across the globe. Over the past 10 years, U.S. sunflower yields increased nearly 3% per year while world yields increased by just 0.5% annually. Furthermore, those U.S. yields went up despite the shift of many sunflower acres to more westerly portions of the Dakotas that are lower in rainfall.
So why the impressive increase in U.S. sunflower yields during the past decade? Hybrids have progressively improved, and there have been more input choices available. Weed control has greatly improved with better herbicides such as Spartan, Express and Beyond (Clearfield® sunflower). Seed treatments are much better in achieving consistent stands. Fungicides are now available to control rust and promote better overall plant health. And, prices have been attractive, thus allowing farmers to invest in these inputs. Farmers are doing a much better job of managing this crop from seeding to harvesting and in incorporating no-till and minimum till systems to retain soil moisture in the more-arid production regions.
If this annual yield increase continues, U.S. farmers would be at an average of nearly 2,100 lbs/ac in 10 years. Is that doable? It seems very likely that this level not only can be achieved, but actually will be surpassed. In the 2009 crop year, South Dakota producers averaged 1,800 lbs/ac statewide — and six of that state’s counties had an average of 2,000 lbs/ac or higher. Privately, farmers have confirmed dryland yields of 3,000 lbs/ac and more with oil contents in the upper 40s.
There are new production tools in the pipeline. Unfortunately, the toolbox may not include new herbicides; but it does include greatly improved breeding capabilities. Already underway are molecular marker breeding techniques that will speed up gene identification for yield and pest resistance. The August/September 2010 issue of The Sunflower outlined the industry/USDA-ARS partnership on a SNP project (single nucleotide polymorphism) that will fingerprint a portion of the genetic makeup of the plant. Another ongoing project involves the development of a doubled-haploid breeding procedure that will greatly reduce the number of generations required to introgress a favorable trait into a breeding line or hybrid. (Corn already has a doubled-haploid system in place, and it has been a benefit for that crop’s breeding programs.)
It is very likely that these advances will be adopted by farmers in Russia, the Ukraine and India, where yields of sunflower and other oilseeds lag. There is a possibility that soybeans will be bred to produce more oil. But the protein demand is not likely to subside either. New land
areas for agriculture are limited, and efforts to replace rain forests in Indonesia and Brazil with production agriculture stir up lots of emotions.
So there are good opportunities for high-oil content seeds. There is a new-found respect for oil since protein has long dominated the oilseed market. The U.S. has long been the world’s warehouse for excess soybean oil.
Despite the likely uptick in oilseed yields, it is unlikely that the aggressive worldwide biodiesel mandates can be sustained, according to Oil World’s Thomas Mielke. World population continues on a sharp upward trend line, and there seems little likelihood of turning back demand in the large population centers like India and China. At the Minneapolis meeting, Bunge CEO Oren Schroder said, “The world is one short crop away from real tension in supply and demand. God forbid we have one [short crop] in this country.” — Larry Kleingartner
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