From the second half of 2020, after a collapse in prices at the beginning of the pandemic, the vegetable oil sector had recorded significant price increases due to an imbalance between supply and demand. The Russian war underway in Ukraine has further worsened supply-side tensions, generating new price rises.
With the closure of Ukrainian ports and the exclusion of Russia from international payment circuits, 80% of the world’s sunflower oil exports are at stake. To this imminent shock on the supply side, the prices of palm oil, soybean oil, and rapeseed oil, the main substitutes, reacted sharply touching new record levels.
Also affected, albeit to a lesser extent, are the price increases in the energy sector, driven by oil prices which are inevitably transferred to biofuel and therefore to vegetable oils.
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RECORD PRICES FOR SUNFLOWER OILS AND SUBSTITUTES
It was only in the second week of March that the first sunflower oil quotations were recorded in European ports. They were far beyond any previous market equilibrium, with crude hitting an all-time high of $3,000/ton, up +100% compared to pre-war quotations.
News of defaults on supply contracts is the order of the day. In response to the shortage of sunflower oil, the Italian Ministry of Economic Development has allowed the Italian food industry to use labels and packaging already in their possession, replacing sunflower oil with other vegetable oils in the list of product ingredients to ensure continuity of production.
Palm oil prices had already been affected for some time by a production level below maximum potential, due to a serious shortage of foreign labor in Malaysia due to health restrictions on entry into the country. After a disappointing harvest in Canada, the price of canola oil has already increased significantly since July 2021. Also Soybean oil, in spite of rather solid fundamentals, is suffering from the tensions in the sector. Paradoxically, sunflower oil itself, benefiting from an expected world production at record levels, was destined to be priced at a discount on all other substitute edible oils.
ABOUT OLIVE OIL
In this difficult situation, the price of extra virgin olive oil has been stable since the beginning of the year, at least until the war in Ukraine broke out. Prices of Italian extra virgin olive oil have risen slightly, more than olive oil coming from the rest of Europe.
A possible prolonged blockade of exports of sunflower oil and seeds could divert part of the demand towards lower quality olive oils, leading to price increases throughout the sector. In this context, Spanish olive oil could play a key role.
