Cooking oils in ‘perfect storm’ as war slashes Black Sea exports

• 'Cupboard is bare,' says analyst, as world supplies dwindle
• Sunflower and corn seeding in Black Sea areas will be down

Cooking oils are facing "a perfect storm," with as much as 60% of sunflower oil exports from the Black Sea region being delayed in the current marketing year because of Russia's invasion of Ukraine, according to James Fry, a veteran analyst and chairman of LMC International, a consultancy. 

Sunflower and corn plantings, which should take place soon, are also likely be smaller in Ukraine and Russia, Fry said in remarks prepared for a conference. Only a month ago, the company expected sunflower oil exports from the Black Sea to increase by well over 2 million tons to 13.5 million tons in 2021-22, Fry said, adding the question is how much of that will be lost because of the war.

"Stocks and export supplies of oils are down," said Fry. "The cupboard is bare. There is no alternative to letting high prices do the job of rationing demand to balance the market." Crude palm oil for local delivery in Malaysia will likely trade from 6,600 ringgit ($1,578) to 8,100 ringgit a ton until July, he said. Most active futures in Kuala Lumpur were at about 6,823 ringgit on Wednesday.

Combined palm oil shipments from Southeast Asia will not surpass volumes in 2020 until the third quarter, Fry said. On Monday, he forecast Malaysian output will rise only around 3%-4% this year because of a labor shortage, while the "real crunch" in cooking oil supplies will come in the next six months. 

World soybean oil shipments will likely decline in 2021-22 because of higher demand in exporting countries. That comes as the estimated expansion in this year's soybean crush has been cut to 4.5 million tons from 16 million tons.

Inflation will get worse and central banks may finally raise interest rates to rein in economic activity and limit demand for the reduced supplies of food and fuel, Fry said. While the best short-term hope for higher exports is for top producer Indonesia to end its shipment quotas or briefly cut its B30 biodiesel mandate, Fry says it's doubtful such a reduction will happen. 

Still, prices of palm oil, the most consumed edible oil, will eventually decline as supply builds up and demand is squeezed in the second half of the year, Fry said. That means crude palm oil for local delivery in Malaysia will drop to a range of 6,200 ringgit to 7,000 ringgit a ton.