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Global Demand For Vegetable Oil Surges, Supply Struggles

NEW YORK—Global demand for vegetable oils for food and biofuel use is expected to increase by an additional 23 million tons by 2016; however supply is expected to struggle to keep up with the demand, according to a new report from Rabobank.

According to the report, “Finding the Food-Fuel Balance," vegetable oil stocks reached a 38-year low in 2012 due in large part to constraints, such as land availability and adverse weather. For the past four years, the world’s stock-to-use ratio for vegetable oils has been on a declining trend and will reach a low of 7.5% in 2013, a level not seen since the mid 1970s. The decline is largely down to supply’s inability to keep up with rising demand. Production shortfalls in recent years have resulted in a draw-down of stocks that is unlikely to be reversed in the near future.

Although global demand for vegetable oils for food uses will continue to increase, Rabobank’s expected annual growth rate for the next five years is 3.3%, lower than the 4.7% growth rate seen in the previous five years. The reduction is expected to be driven by the biodiesel sector.

In many parts of the world, such as the European Union and the United States, there is waning support for biofuels as higher vegetable oil prices have combined with relatively low crude oil prices to squeeze margins, and government support proves costly in challenging economic circumstances.

“Demand growth has proven to be resilient to economic crises and higher prices. This is because vegetable oils are mostly used for food purposes and, while they can be easily substituted among each other, their demand is relatively inelastic," said Rabobank analyst Paula Savanti. “However, supply growth has been less robust as production has been negatively affected by some adverse weather and land availability remains a significant constraint to production."

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