The soybean industry in the United States is in full swing in expanding the development and production of high oleic soybean oil. Various efforts are being undertaken to recapture lost market share in the food sector and expand into additional new markets.
The United States is one of the world’s largest producers and consumers of soybean oil. In 2019 the US consumed roughly 10 million tonnes of soybean oil. Soybean is without doubt the most consumed vegetable oil in the U.S. Domestic consumption of soybean oil has been increasing over the past three years. The availability of a large domestic supply and competitive pricing are the main reasons in securing its dominance in the oils and fats market in the US. According to an industry estimate, approximately 88 percent of total soybean oil production is domestically utilized with the remaining 12 percent exported.
The U.S. Food and Drug Administration (FDA) decision to impose the trans-fats labelling requirement in 2006 had huge negative impact on the demand for hydrogenated soybean oil. According to industry estimates, soybean oil lost as much as 5.5 billion pounds of demand from U.S. food market segment. An article published by the United Soybean Board (USB) in December 2019 indicated that U.S. food manufacturers started switching to using high oleic canola oil and palm oil as the replacement for partially hydrogenated soybean oil in the baking and frying fats. This triggered the doubling of U.S. imports of palm oil between 2005 and 2012.
U.S. Palm Oil Imports (1000 MT)
The implementation of the mandatory trans fats labeling is the catalyst of change in the U.S. edible oils market. The U.S. soybean industry scrambled to address the critical losses in the oils and fats market share. This pushes the U.S. soy industry to invest heavily in the research and development in developing soybean varieties that provide functional and nutritional benefits.
The high oleic soybeans initiative was launched commercially in 2012. Based on USB reports, farmers currently grow high oleic soybeans in 13 states throughout the U.S. soybean belt. The 2015 FDA announcement to phase out partially hydrogenated oils basically pushed U.S. producers to increase the production of high oleic soybeans. To speed up the supply of high oleic soybeans for edible and inedible uses, U.S. soybean growers are collaborating with major seed technology companies and oil suppliers to boost the production. It is estimated that in less than a decade, high oleic soybeans will be the fourth-largest grain and oilseed crop in the U.S. and the supply of high oleic soybean oil will exceed all other high oleic offerings combined in North America.
United Soybean Board (USB) has set a target of 18 million acres of high-oleic soybeans grown by 2023, out of the approximately 80 million acres that U.S. soybean farmers annually plant. According to the estimates by the USB, the projected high oleic soybean planted areas will capture 9 billion additional pounds of oil from new and existing markets. Producers are confident that high oleic soybean oil can meet the needs of many food industry customers as a trans-fat-free replacement for partially hydrogenated oil. It also has a huge demand potential in the industrial market sector.
According to USB, the current momentum in the production of high oleic soybean oil is very encouraging. Based on the projection by QUALISOY, an independent, third-party collaboration that promotes the development of soybean traits, 9.3 billion pounds of high oleic soybean oil will be available by 2024.
The development and production of high oleic soybean oil received a major boost by the November 2018 announcement by the U.S. Food and Drug Administration (FDA) which authorized the use of a qualified health claim citing that oils high in oleic acid may reduce the risk of coronary heart disease. The FDA announcement covers specific edible oils including high oleic versions of sunflower, canola, olive, safflower, and algal oil.
Even though the FDA statement did not specifically mention high oleic soybean oil in its authorized health claim, it applies to edible oils containing at least 70 percent of oleic acid per serving. According to Lolly Occhino, Agricultural Utilization Research Institute (AURI) Food and Nutrition Scientist, the oleic acid content in high oleic soybean oil exceeds 70 percent and can be as high as 75 percent. This clarification may encourage U.S. food manufacturers to undertake measures to reformulate products such as salad dressings or bottled vegetable oils, using high oleic soybean oil.
The FDA announcement is the catalyst needed by the soybean industry to recapture some of the lost market share in the past years due to the implementation of the mandatory trans fats labelling. There are insufficient industry data and market input to determine the effect of the growth in high oleic soybean oil production on the demand of palm oil in the United States. The current market scenario, amid the pandemic, does not accurately reflect the actual supply-demand trends of palm oil in the U.S. The measures undertaken during the pandemic which include social distancing, travel restrictions and stay-at-home orders, have affected the food and the HORECA industry and the demand for oils and fats, including palm oil. According to the statistics published by the Malaysian Palm Oil Board (MPOB), from Jan-July 2020, total Malaysian palm oil exports to the United States were recorded at 345,426 MT. This volume represents a decrease of 39,462 MT or 10.2% compared to the total volume of 384,888 MT recorded during the same period of 2019.
However, in the long run, the expansion of high oleic soybean oil production, supported by the FDA health claims, may have some effect on the share of palm oil in certain market segments, including the food manufacturing sector. While palm oil and high oleic canola oil have temporarily filled the void left by commodity soybean oil’s removal from baking and frying applications, high oleic soybean oil is poised to take back markets.
The lost in palm oil market share will be closely determined by the production volume escalation of high oleic soybean oil by U.S. producers, the ability of producers to keep the price of the commodity down, and the availability of sufficient high oleic soybean to meet the market demand and growth. Producers claimed that high oleic soy oil can withstand up to three times as many frying as current industry standard which in turns will cut the oil costs for processed foods by as much as a third in the coming years.
The expansion of high oleic soybean usage in the food sector will also depend on the ability of the U.S. soybean industry to convince food manufacturers to reformulate their products to incorporate high oleic soybean oil. U.S. palm oil demand potential and the expansion of the usage of high oleic soybean are also closely tied to the price movement and the availability of supplies of other competing commodities. Palm oil prices have fallen during the ongoing global coronavirus uncertainty period. This scenario may continue to stimulate and support palm oil market demand in the U.S. For now, United States remained the largest importer of palm oil in the Americas region.
Sources: U.S. Food and Drug Administration, United Soybean Board, QUALISOY, Agricultural Utilization Research Institute (AURI), Oil World, DuPont Company, Corteva Agriscience, Gil Gullickson, MPOB Statistics, MPOC Market Analysis
Prepare by Zainuddin Hassan
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