Supply shortages are good news for staple vegetable oil crops - but are doing little to boost the fortunes of more expensive ones, reports Mintec's Robert Miles


Unlike many other crop commodities, the prices of cheaper edible vegetable oils have risen in the past few weeks.

Is this the first sign of the "green shoots of recovery" we are so eagerly awaiting? Or merely another speculative bubble about to burst?

The cheapest vegetable oils - soya and palm - enjoy the highest demand, with each accounting for roughly a third of the world's current vegetable oil consumption. Recently, any impact of global recession on the price of such oilseed crops seems to have been more than offset by supply shortages.

China has emerged as a big buyer, purchasing palm oil and buying soya beans for crushing into vegetable oil and animal feed. India is expected to increase vegetable oil imports to a record level after a combination of drought and floods reduced domestic production and growing affluence prompted predictions of a rise in the level of consumption. Palm oil inventories in Malaysia are at their lowest level in 20 months, meanwhile, and drought in Argentina and Brazil is hitting soya production this year.

Delayed planting in Canada due to wet weather is also putting upward pressure on prices.

The current situation also stems from earlier events, such as potential oilseed productivity being hit by reduced fertilizer use brought on by last year's high fertilizer prices.

Also, the high price of wheat and other grains during the past planting year persuaded many farmers to focus on these crops - and it is now too late in the year to be sowing oilseed crops. The next sowing opportunities will not be until August or September, by which time all bets may be off.

Another factor prompting the sharp increase in the price of cheaper oils has been the recent appreciation in the basic price of crude mineral oil, as crude oil prices tend to influence vegetable oils.

Also boosting such products is renewed interest in oilseed crops for biofuels as long-term government mandates come into force.

However, the more expensive oils continue to feel the bite of recession. During the boom years they were in demand as British shoppers sought healthier, more flavoursome alternatives and the shelves of UK supermarkets offered exotic or esoteric vegetable oils. Today, the price of these more unusual products continues to fall. So what's the prognosis for the next few months?

With oil stocks tightening and signs of increasing demand for food and biofuel, prices would seem to be back on track and may continue to head upwards.

But we must not forget that high prices will inevitably limit demand, or that the market anticipates a bumper harvest from November. Speculators could already be planning to "sell in May and go away".