October 16, 2015

16/10/2015: What Affect Do Crude Oil Prices Have on Animal Feed Costs?

As more oilseeds and vegetable oils have been diverted into biofuels over the last 15 years, the fluctuations of oil prices have been matched by movements in vegetable oil and oilseed prices. But what affect, if any, does this have on the cost of livestock feed?

Due to this apparent shift in the constitution of the world’s livestock and aquaculture feed market, prices are now becoming more dependent than ever on the movement of the Brent crude oil market.

Julian McGILL

Speaking at the Agricultural and Horticultural Board’s Grain Market Outlook Conference in London on Wednesday, Julian McGill from LMC International said that a transformation occurred in vegetable oil markets because of biofuels policy.

McGill stated that before 2002, the area of harvested oilseeds and vegetable oils had remained relatively static. This remained the case until vegetable oils started to be blended for biofuels; with maize being used for ethanol in the US and soy oil and rapeseed oil for biodiesel.

Biofuels then enjoyed a rise in both maize and oilseed and vegetable oil production. However, the increase in production was also boosted by an increase in wealth in developed and developing nations and a consequent rise in consumption of meat.

This rise in meat consumption caused a huge increase in demand for livestock feed, which is largely produced from soymeal, the by-product of the soya crush.

Mr McGill said that growth in production has been particularly rapid for animals, which consume a high protein feed.

He also added that there has been a rapid rise in the consumption of both poultry meat and aquaculture products in recent years as the market has been looking at species that breed quickly to meet the growing demand for meat and this rise has produced a growing demand for meal. This growth in demand has sustained increases in soymeal prices compared to those of  maize, for example.

"Palm oil prices are currently at a parity with crude oil prices"

Mr McGill added that since 2007, the prices of vegetable oils have mirrored that of Brent crude as an ever larger proportion of production has gone into biofuels. At present, he said, the production of vegetable oils in the EU for biofuels was almost the same as that for food.

The movement of vegetable oil and oilseed prices are primarily driven by the movement of the crude palm oil price, the cheapest and most abundant vegetable oil; because it is produced all year round.

Palm oil prices are currently at a parity with crude oil prices according to McGill, adding that this is caused by the free market blending of biodiesel which has created a price floor. This situation has also been reinforced further by palm oil from South East Asia being much cheaper to buy than crude oil.

Mr McGill said that although demand for biofuels has slowed and  prices have declined, the demand for meal remains strong.

While crude palm oil and rapeseed oil prices are expected to recover compared to crude oil, they could be hit further by a forecasted increase in the production of soybean for meal.

Read more HERE.

The Global Miller
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