How does crude oil price affect vegetable oil markets?
The advent of biodiesel and the different biofuels' mandates both in the EU and in the US permanetly altered the oilseeds complex by creating the link between vegetable oils and crude oil prices.
Despite the waning enthusiasm for biodiesel recently in the EU and the shrinking mandates in the US, the relationship between crude oil and vegetable oils is as strong as ever.
However, now there is too much output and too little demand. The biofuels market expanded the frontiers of agriculture in mant regions but now following years of high prices the growth in output has seen prices reduced as demand is also reduced.
Much of the growth in production was seen in South East Asia, particularly with the growth of the palm oil sector.
The growth and rise in prices through biodiesel driven by political agendas meant that the value vegetable oils went up and down according to thr brent crude prices because of the blends with fossil fuel oils.
However, while the demand for vegetable oils and the meal by-product for livestock feed ran at the same rate for a long period, eventually the demand for the oils grew faster than the demand for meal.
This then saw a change in the market as the producers of biodiesel started to switch to palm oil, which has no meal residues to dispose of compared to soy.
While it might have been expected to see a drop in vegetable oil production when the political support for the market was reduced, the market itself saw that there was a lucrative outlet for vegetable oils – particularly when the price of crude oil was high.
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