Richard Brock

February 21, 2008

3 Min Read

World vegetable oil prices continue to rise to new all-time highs amid ideas China will boost imports further as it tries to control strong food-price inflation.

Speculation about Chinese import demand heightened on Tuesday after China’s government statistics bureau said the national inflation rate hit an 11-year high in January.

The bureau said its main inflation indicator rose at an annualized rate of 7.1% last month, pushed up primarily by an 18.2% spike in food prices. Cooking oil prices surged 37.1%, while pork prices jumped 58.8% in January.

Nearby March soybean oil futures at the Chicago Board of Trade drove to new price highs for the third consecutive session on Tuesday, reaching 60¢/lb. for the first time ever, while Malaysian crude palm oil futures posted new all-time highs for the fourth straight day.

Reports of severe damage to China’s rapeseed crop from recent winter storms have also contributed strongly to the latest surge in vegetable oil prices.

In an attempt aimed at easing concerns about vegetable oil supplies, China’s top planning body released a special report on Tuesday stating that 2008 rapeseed output is estimated to fall by only 200,000 metric tons from 2007, due to the recent severe weather.

The National Development and Reform Commission (NDRC) said the winter storms – the worst in half a century – could lower output by 1.7 million tons, but an acreage increase would offset a large portion of the weather losses.

"It will have no impact on supply," the NDRC said of the rapeseed damage, noting 200,000 tons of rapeseed would be equivalent to 70,000 tons of rapeseed oil, which accounts for 0.3% of the country's consumption.

The NDRC did not provide an estimate of China’s total rapeseed output for this year or last year. Total oilseed output this year should be slightly higher than last year due to increased acreage for oilseeds, such as soybeans and peanuts, after measures taken by the State Council, it said.

Private analysts and industry officials have estimated last year’s rapeseed output at 8-9 million tons, much lower than the 12 million tons estimated by an official think-tank.

Traders and industry officials told Reuters News Service on Tuesday that China’s government resumed buying soybeans and soyoil for recently created government reserves last week.

Government reserve agencies had bought up to 50,000 metric tons of soyoil over the past week, adding to stockpiles that it created in the latter half of last year, the sources told Reuters.

Some sources said Beijing planned to buy about 200,000 tons of soyoil in the current round of purchases, although exact tonnage could not be determined. "They realized one mistake: without sufficient stocks, you can't control the market," said a trader at an international house in Shanghai. "China definitely needs to go long these physical grains, instead of holding so many U.S. dollars."

Industry officials said Beijing planned to build 1.5 million tons of soyoil reserves and stockpile 5 million tons of soybeans, which it needs to source from the U.S. or South America.

It is unclear how much Beijing has bought so far, but industry figures think reserves are small. The soyoil reserve is believed to hold less than 1 million tons – a fraction of the estimated 25 million tons of vegetable oil China consumes annually.

Editor’s note: Richard Brock, The Corn And Soybean Digest's Marketing Editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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