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Global vegetable oil users find themselves in a tough spot

Consumer packaged goods sector will find it difficult to replace sunflower oil supplies threatened by the war in Ukraine.
wp sunflowers stock getty
Snack food manufacturers tend to use corn oil, sunflower oil or high oleic canola oil in their products, and there are not a lot of suitable replacements for all the Black Sea sunflower oil that has been lost because of Russia’s invasion of Ukraine.

WESTERN PRODUCER — The war in Ukraine has profound implications for global vegetable oil markets, such as boosting demand for high oleic canola oil, say analysts.

Ukraine typically accounts for about half of the world’s sunflower oil exports or about five to six million tonnes per year.

“That’s a tremendous amount of oil,” said Bill Lapp, founder of Advanced Economics Solutions.

To put that in perspective, Canada exported 3.15 million tonnes of canola oil in 2021.

“It’s going to make balance sheets tight for vegetable oils around the world,” said Lapp.

“It comes at the same time that the U.S. is ramping up its biofuel demand for fats and oils.”

He estimates Ukraine has about three million tonnes of sunflower oil from the 2021-22 crop that is stranded due to the closure of its ports and crush plants.

It is anybody’s guess how much of that stockpile and whatever new crop oil is produced will be exported in 2022-23.

UkrAgroConsult forecasts the country’s farmers will plant 9.4 million acres of sunflowers this spring, a 44 percent drop from last year.

Most of the crop is grown in the war-torn eastern and southern portions of the country.

The Ukrainian government estimates that its farmers have about 20 percent of their fuel needs, so the ability to seed, apply fertilizer and pesticides and harvest the crop is in serious jeopardy.

As well, if the war is still in full swing come harvest, crushers will not be able to restart their plants and export their oil.

Meanwhile, Russia has announced it is imposing an export quota of 1.5 million tonnes on sunflower oil from April 15 to Aug. 31.

The U.S. Department of Agriculture had been forecasting 3.65 million tonnes of sunflower oil exports out of Russia in 2021-22, or 30 percent of world trade.

Sunflower oil is primarily used in the packaged goods and snack food industry. It is a minor player in the frying oil market.

David Dzisiak, chief operating officer of Botaneco and former commercial leader of grains and oils at Dow AgroSciences, said there are not a lot of suitable replacements for the lost Black Sea sunflower oil.

Snack food manufacturers tend to use corn oil, sunflower oil or high oleic canola oil.

They can’t use regular soybean oil due to taste concerns and palm oil and cottonseed oil are too high in saturated fats.

“That void of sunflower oil presents a real problem, a huge problem if you’re in the branded CPG (consumer packaged goods) area,” he said.

“It’s really serious.”

The problem is compounded by the 35 percent reduction in Canadian canola production in 2021-22.

It doesn’t help matters that Ukraine typically accounts for about 17 percent of world corn exports, which could limit the amount of corn oil on the market as well.

“All of the sudden, wow,” said Dzisiak.

He said food manufacturers may have to source oil from the restaurant industry, which would, in turn, backfill with supplies of conventional canola oil, soybean oil or palm oil blends.

Tyler Groeneveld, North American commercial grains and oils leader for Corteva Agriscience, said the upshot is that the demand for high oleic canola oil has become “very brisk.”

Farmers are receiving premiums of $1.50 to $2.50 per bushel for growing high oleic canola in 2022, which is about 50 cents per bu. higher than normal.

But he thinks high oleic area will remain flat in Canada at about 1.5 to two million acres just as overall canola plantings will remain stagnant at last year’s levels of 22.5 million acres.

That is primarily due to a lack of seed availability caused by last year’s drought, although he said there is still some high oleic seed that can be found.

Groeneveld expects canola seed and oil prices to remain at elevated levels in 2022-23 because demand for the products is going to overwhelm supply unless there is an abrupt end to the hostilities in Ukraine.

Lapp said vegetable oil prices are already at near record levels, with soybean oil prices of 72 cents US per pound as of March 30.

He doesn’t think there is much room for price increases but he believes prices will remain elevated in the 60 to 80 cents range for the remainder of 2022 due to the Ukraine situation.