iGrain India - The global edible oil market is experiencing a significant shift, with soybean oil gaining dominance over palm oil due to a combination of supply disruptions and favorable production conditions.
Palm Oil Price SurgePalm oil, historically considered an affordable oil, has seen a substantial price increase of about 30% this year. The main reason for this surge is a supply shortage, which has been exacerbated by increasing domestic demand for biofuels in the primary palm oil-producing countries—Indonesia and Malaysia. These two nations together account for around 83% of global palm oil production. As more of their palm oil is being diverted to biofuel production, the amount available for export has declined, pushing up prices. Palm oil's prices have reached a record premium over soybean oil, with Malaysian palm oil futures being $145 per tonne higher than Chicago soybean oil futures—the highest margin in decades.
Soybean Oil's Price AdvantageIn contrast, soybean oil prices have dropped by about 11% this year. This decline can be attributed to a record global soybean harvest, with major exporters like Brazil and Argentina ramping up production. Combined, these two countries supply 58% of the world’s soybean oil exports. Moreover, the U.S. has reversed its earlier export restrictions due to biofuel policies and is now exporting at the highest levels in four years. The increased supply of soybean oil has made it more affordable and accessible, thus eroding the price advantage that palm oil once held.
Historical Context & Future OutlookThe current price reversal between palm and soybean oil is reminiscent of a similar situation in 1998-99 when palm oil production faced a decline due to El Niño. Experts suggest that the premium of palm oil over soybean oil might be temporary, with production challenges likely to continue affecting palm oil prices. Furthermore, other oilseed crops like rapeseed and sunflower are expected to experience reduced production in the 2024-25 period, potentially further solidifying soybean oil’s position as the more affordable option.
Given the production dynamics and shifting trade policies, the downside potential for soybean oil prices appears limited, while palm oil may continue facing price pressures due to its production constraints.