Friday, November 1, 2013

China's Vegetable Oil Prices Slide

Prices for vegetable oil in China are being cut during a seasonal lull in demand and the market impact of plentiful global oilseed supplies are transmitted to China.

China's Daily Business News reports that major cooking oil brands are preparing their second round of major price cuts and promotions for 2013 (the first was in May). The wholesale price for Jinlongyu (Arawana) brand of soybean oil has been cut 1.15 percent to 172 yuan for a case of four 5-liter bottles. Jinlongyu peanut oil is being cut 2.33 percent to 430 yuan per case. News media in five different provinces report that cooking oil prices are falling.

A Guangzhou news site reports larger cuts in retail prices. Jinlongyu soybean oil is being cut from 78 yuan to 68 yuan per bottle, a 12.8-percent reduction. Eagle brand peanut oil is being cut from 105 to 95 yuan, a 10-percent reduction.

An oilseeds analyst consulted by Daily Business News attributed the decline to a glut of soybeans and peanuts coming on the market after harvest, soft demand after the National Day holiday, and companies wanting to clear out inventories. The analyst blames excess capacity in the soybean processing industry--the analyst estimates capacity at 126 million metric tons, nearly double current production.

The United States is having a big soybean harvest, and Chicago futures prices for both soybeans and soy oil fell. Canada also had a big canola harvest this year. Daily Business News notes that China's rapeseed (canola) imports are surging, also contributing to plentiful supplies and putting downward pressure on Chinese veg oil prices.

Meanwhile, there are more articles on crises in China's soybean industry. Ninety percent of domestic crushing enterprises are said to be idle and farmers are said to be abandoning soybeans in favor of more profitable corn and rice. Heilongjiang's "non-GMO" soybeans are said to be facing "potential extinction." A Grain and Oils News reporter traveled through northeastern provinces and said it was hard to find soybean fields; one crushing plant affiliated with the Jiusan Group operated at only 30 percent of capacity last year because it couldn't get enough soybeans.

Relatively weak food prices across the board in China contradict international news media stories this year reporting food-price inflation. Many of China's major food retail prices turned down in mid-October data released by the National Bureau of Statistics (declines in veg oil prices hadn't shown up yet). Weak international prices due to big harvests are being transmitted to the Chinese market and domestic demand is still not that robust.

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