What is the impact of Russia's implementation of sunflower oil export quotas in the next 5 months on global edible oil trade?

21st Century Business Herald reporter Shu Xiaoting reported from Beijing

The evolution of the situation in Russia and Ukraine will affect the future planting and harvesting of sunflower seeds in Ukraine.

According to local media reports, on April 1, local time, Taras Vysotskiy, deputy minister of agriculture of Ukraine, said that Ukrainian farmers have sown about 400,000 hectares of spring crops, an increase of 1/10 over the same period last year.

However, Ukrainian Agriculture Minister Roman Leshchenko said in an interview with the media on March 22 that the area sown in Ukraine in the spring of 2022 may decrease by more than one-second year-on-year, to about 7 million hectares. Before the conflict escalated, the area sown was expected to reach 15 million hectares. Some institutions predict that the area under sunflower seed cultivation in Ukraine may decrease by 35% year-on-year in 2022, reaching the lowest level in 13 years.

Ukraine and Russia are the world's leading producers of sunflower oil. According to data released by Trade Data Monitor, the top three sunflower oil exporters in the world in 2021 will be Ukraine, Russia and Argentina. Rating agency CRISPL said in a report that Russia and Ukraine cumulatively export about 10 million tons of sunflower oil each year, and Argentina exports about 700,000 tons.

Recently, affected by the geopolitical conflict between Russia and Ukraine and trade policies, the export of sunflower oil between Russia and Ukraine has been blocked, and the international oil and oil prices have fluctuated widely at a high level under the market concern.

Xinhu Futures oil oil analyst Chen Yanjie told the 21st Century Business Herald reporter that in the context of global vegetable oil supply and demand is still very tight, if the conflict between the two countries continues, the Export of Ukrainian Sunflower Oil continues to be interrupted, then the Eu, India may seek palm oil, soybean oil and other import substitutions to meet domestic demand, which may raise the entire international vegetable oil price range, and then support China's domestic vegetable oil prices through cost transmission.

"Considering the multi-faceted influencing factors, in the medium term, international and domestic oilseed prices are expected to maintain a high and wide range shock trend, and it is unlikely to fall deeply." Chen Yanjie said.

Exports of Russian sunflower oil are restricted

Russia and Ukraine are the world's major sunflower seed producers, and in recent years, the combined annual output of sunflower seeds in the two countries is about 30 million tons, accounting for about 60% of the world. The sunflower seed extraction of the two countries remains in China and is exported in the form of sunflower oil, with an annual export volume of nearly 10 million tons, accounting for about 76% of global sunflower oil exports, of which Ukrainian sunflower oil exports account for 47% and Russia accounts for 29%.

A few days ago, the Russian Ministry of Agriculture said in a statement that in order to avoid the shortage of domestic sunflower seeds and alleviate domestic price pressure, from April 15 to August 31, an export quota of 1.5 million tons of sunflower oil will be implemented; at the same time, sunflower seed exports will be temporarily banned from April 1.

In late March, Ukraine lifted export restrictions on sunflower oil. Earlier in March, Ukraine announced that exports of key agricultural products such as sunflower oil would require a government-issued export license.

Since the escalation of the conflict on February 24, the damage to port facilities such as Odessa and Mikolev in Ukraine has hindered transportation, and some crushing and processing operations have also been restricted, which has had a certain impact on the original grain trade flow and affected the export of agricultural products such as sunflower oil in Ukraine. In addition, the sanctions imposed by Western countries have also affected the willingness of trade buyers to buy Russian grain and oil crops.

Due to the uncertainty of the evolution of the situation in Russia and Ukraine, the future export prospects of sunflower oil between the two countries are also uncertain.

Sunflower seeds are harvested in Russia and Ukraine from September to October and exported in Q1-Q2 of the following year. According to the Food and Agriculture Organization of the United Nations (FAO), Russia and Ukraine are expected to export 3.7 million tonnes and 6.6 million tonnes of sunflower oil respectively in 2021/22 (October 2021-September 2022) due to improved supply, with shipments accounting for 30%-40% from October 2021 to February 2022, respectively, due to improved supplies.

The impact on the global edible oil trade is geometric

The blockage in the supply of sunflower oil in Russia and Ukraine means that major sunflower oil importers may turn to other suppliers or other alternative oils such as soybean oil, palm oil and rapeseed oil. According to FAO's estimates, sunflower oil importers such as India, the European Union, China, Iran and Turkey will have an import demand of 5.3 million tonnes of sunflower oil from March to September 2022.

Among importing countries, India and the European Union have a large demand for sunflower oil. Among them, India's demand for sunflower oil is 2.2 million tons - 2.3 million tons / year, about 70% of the supply comes from Ukraine, about 20% from Russia. At present, about 300,000 tons to 400,000 tons of sunflower seed oil are stranded in Black Sea ports in India.

Chen Yanjie pointed out that the total export of sunflower oil from Russia and Ukraine is more than 10 million tons / year, nearly 1 million tons / month, and other vegetable oils such as soybean oil and palm oil cannot fill the gap in the supply of oil and fat in the short term.

She explained that in terms of soybean oil, South American soybeans have been affected by drought weather production, Argentine soybean oil crushing and output is small, international soybean oil prices remain high; palm oil, Malaysia palm oil stocks continue to be low, labor shortage problem is temporarily difficult to alleviate, and Indonesian palm oil export taxes have been significantly increased, and international palm oil prices are not driven by a significant decline for the time being. In terms of rapeseed oil, due to factors such as the reduction of Canadian rapeseed production, the price of rapeseed oil before the new season is listed has limited room for decline.

"If tensions continue, the EU sunflower oil shortage will become more pronounced, and international sunflower oil prices will still tend to strengthen, and if they continue to exceed rapeseed oil prices, this may lead the EU to reduce the amount of rapeseed oil used in biodiesel." Chen Yanjie said.

How much does the restriction on exports of Russian sunflower oil affect China? Chen Yanjie pointed out that Russia and Ukraine are China's main source countries for sunflower oil imports, and China will import 887,000 tons of sunflower oil from Ukraine in 2021, accounting for 70% of China's sunflower oil imports. Although imports account for a relatively large proportion, compared with China's annual consumption of about 36 million tons of edible vegetable oil, China's consumption of sunflower oil is not high, so the impact of the interruption of Ukrainian sunflower oil exports on China is limited.

Sunflower oil is not only a small variety of oil in China, but also has a low proportion of consumption in global edible oil. Hu Bingjing, director of the Agricultural Products Trade and Policy Research Office of the Institute of Rural Development of the Chinese Academy of Social Sciences, told reporters that the total global supply of edible vegetable oil is about 200 million tons / year, while sunflower oil accounts for only about 10%. Coupled with the price boost, the global oil and fat oilseed production has continued to increase in the past two years, it is foreseeable that in the follow-up, with the Fed tightening monetary policy, the geopolitical situation easing, and the trade pattern returning to an orderly state, the international grain and oil price trend will also tend to be flat.

Zheng Fengtian, director of the Institute of Rural Development of Chinese University, also believes that the impact of the geopolitical situation on the global sunflower oil market is temporary, and the impact is narrow. Overall, since the conflict occurred before the spring sowing of crops, which left time for other producing countries to adjust the varieties they planted, and each country has corresponding reserves, international grain and oil prices will gradually stabilize from the previous sharp rise and fall as demand and supply reach a new equilibrium.

According to a March 31 planting forecast released by the U.S. Department of Agriculture's National Bureau of Agricultural Statistics (NASS), U.S. farmers expect to plant 1.42 million acres of sunflowers in 2022, an increase of 10% year-on-year. Among them, the area planted by oil sunflower reached 1.27 million acres, an increase of 8% year-on-year.

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