An analysis of the United States oils and fats market demand.

The flattening of the pandemic curve have encouraged U.S. states to initiate plans to start the lifting of restrictions put in place to combat the coronavirus outbreak, despite concerns raised by many public health officials and politicians.

For many months, the COVID-19 pandemic is creating massive chaos across the United States, disrupting daily lives, supply chains, and wrecking the economy. The closing of restaurants and hotels to contain the spread of coronavirus have cut demand for consumer goods.

U.S. businesses large and small were reeling from shutdowns, cancellations, and public fear about the coronavirus as the number of cases rose nationwide. The pandemic sent the economy into a recession and some experts suggested the nation may be dealing with the virus until at least August.

This grim scenario has created a dent on the U.S. demand and supply of oils and fats. The preventive measures put in place by the Trump Administration and the various state governments which include travel restrictions, social distancing and stay-at-home orders have affected the food industry and the HORECA industry, among other sectors of the economy due to lower demand.

However, according to recent news report, despite the ongoing cases of COVID-19 in the United States, the U.S. soybean industry continues to operate at near full capacity. U.S. railroads, barge operations, trucking companies and other necessary infrastructure and logistical support remain functioning at full capacity to support the ongoing efforts by soybean processors, agricultural export facilities, grain inspectors and U.S. soybean farmers. There is no danger of a food shortage, and the U.S. supply chain will continue to take steps to keep food supplies safe, reliable, and uninterrupted.

USDA estimated the 2020/21 US soybean ending stock to come in at 11.02 million MT, lower than its earlier estimate of 11.75 million MT which is a drop of 0.73 million MT. For the past three years, ending stock were pegged at 15.79 million MT in the marketing year of 2019/20, 24.74 million MT (2018/19) and 11.92 million MT (2017/18).

Despite the restrictions during the pandemic, the data published by Oil World indicates that the consumption of both soybean oil and palm oil increased by 21.7% and 11.7% respectively in the month of March 2020 compared to the consumption volume recorded a month earlier. The end-stock levels for both oils in March 2020 are higher than the volume recorded a year earlier.

U.S. soybean oil export may have received a major boost with the sale of 20,000 tonnes of soyoil by private exporters for delivery to China in the 2019/20 marketing year as reported by the USDA. The sale was the first soyoil deal with China since August 2018 and its biggest purchase of U.S. supplies since November 2016, according to USDA data.

China’s commitment to purchase more agricultural products from the U.S. might positively affect palm oil imports into the U.S. With the signing of the ‘phase one’ trade deal in January, China is expected to increase the uptake of U.S. soybean oil. This may increase Malaysia’s palm oil exports to the U.S. since U.S. will be exporting its local production.

The fall of palm oil prices amid the current global coronavirus uncertainty may also stimulate palm oil share in the vegetable oils market in the U.S. Competitive prices of palm oil and strong demand from the food sector post-COVID19 will stimulate resumption of demand for palm oil in the U.S. in the second half of 2020. According to the recent Jacobsen analysis, when the spread was close to parity, many end-users substituted soybean oil for palm oil, which raised U.S. exports. With the spread moving in the opposite direction, soybean oil export sales to slow as the relative value of soybean oil moves higher. The spread between soybean oil and palm oil will be the crucial indicator to watch to understand the strength of U.S. soybean oil exports over the next six months.

United States maintained its status as Malaysia’s top export destination to the Americas region. Malaysia’s palm oil export to the US in Jan-April 2020 amounted to 204,015 MT, increasing by 29,776 MT or by 17% compared to the same period in 2019. So far, the preventive measures undertaken by the U.S. in slowing down the spreading of the coronavirus have not affected Malaysia’s palm oil exports and the consumption in the U.S. Opportunities for palm oil is encouraging in U.S food industry sector. Demographic growth and changing lifestyles offer a wide range of opportunities to palm oil in the food processing industry.

The overall recovery of the oils and fats demand and consumption in the U.S. will also depend on developments in the energy industry and how quickly the U.S. economy recovers from the coronavirus pandemic. The U.S. Senate recently approved a $2 trillion stimulus package designed to jump-start the economy reeling from the coronavirus pandemic. The package will also provide a huge financial aid into the ailing economy and support those affected by the closures and disruption of daily activity by COVID-19.

Sources:

  1. USDA April 25, 2020
  2. Merco Press May 24, 2020
  3. Reuters.com May 12, 2020
  4. Oil World Statistics Update May 8, 2020

Prepared by  Zainuddin Hassan and Nur Adibah 

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