World Seed Oil Seen Lower First Time in 20 Years by Oil World

World production of oil from seeds is forecast to decline for the first time in 20 years on lower crushing of cottonseed, sunflower seed and rapeseed, industry researcher Oil World said.

The output drop will boost demand for palm oil, reducing stocks of the oil extracted from palm-fruit pulp by September next year even as its production rises 5.9 percent, the Hamburg, Germany-based company wrote in an e-mailed report today.

Soybean oil futures have slipped 4.8 percent in Chicago this year, while palm oil traded in Malaysia had slumped 26 percent in the same period on record Malay stockpiles. Crude palm oil prices in Rotterdam are now $50 to $60 a metric ton cheaper than Brent crude, according to Oil World.

“Oils and fats markets will enter their transition phase to relatively higher prices in coming weeks and months, as stocks are likely to decline from the current record level,” Oil World wrote. “Consumers worldwide are expected to become more dependent on palm oil.”

Production of oil from 10 seeds will slip 0.3 percent in 2012-13 to 101.2 million tons, Oil World predicted. Output of palm oil is seen climbing to 54.8 million tons from 51.7 million tons.

World output of 17 oils and fats is forecast to increase 1.1 percent to 186.8 million tons, the researcher said. Usage is forecast to rise to 187.9 million tons from 182.6 million tons in 2011-12, lowering stockpiles to 21.4 million tons at the end of September from 22.5 million tons a year earlier.

Consumption of palm oil is expected to jump 8 percent to 54.7 million tons in 2012-13 from 50.6 million tons the previous year, driven by insufficient supplies of seed oils.

Oilseed Crushings

“Year-on-year reductions in crushings of rapeseed, sunflower seed and other oilseeds, and reduced export supplies of competing vegetable oils will raise the demand for palm oil,” the researcher wrote.

The price decline of palm oil means the commodity has become more attractive as a feedstock for energy production, Oil World said. That could contribute to an accelerated drop of stocks in the next three to four months.

“Increasing quantities of palm oil are likely to be burned in power plants for electricity generation and heat,” Oil World wrote. “In addition, palm oil has improved its attractiveness as a feedstock for biodiesel production.”

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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