Tallow Struggles in the Wake of Export Loss and Slow Demand

19 November 2001 00:00  [Source: ICB Americas]

The US tallow market continues to struggle as producers and exporters face fierce competition in both domestic and international markets. Low vegetable oil prices, export declines and slower domestic demand blocked tallow from maintaining the price highs seen in August. September saw significant price declines. Prices in August went up to mid-19 cents and 17 cents per pound for edible and inedible tallow, respectively, but prices have since dropped to 12 and 10 cents.

Prices declined even before September 11, but the slowdown of the economy since then has also affected industrial demand for tallow, say producers. "Prices before September 11 started to come off because of a loss of export markets due to lower palm oil prices and a substantial increase in cattle and hog slaughters," says Mitch Kilanowski, executive vice-president of marketing and research at Darling International, a major animal fats producer. "Adding the economic slowdown, all these factors have led to the current prices. However, the average price this year is still higher than last year," he adds.

As competitive palm oil and soybean oil glutted the global oils and fats market, global tallow consumption continued to decrease this year and US exports declined. US tallow exports last year were 916,000 tons, a respective 11 and 21 percent decline from 1999's level of 1 million tons and 1998's level of 1.2 million tons. US exports from January to August in 2001 for both edible and inedible tallow were only 493,000 tons, a 19 percent decrease from 607,000 tons in the same period last year.

The US position in the global tallow export market is also hit by competition from other major exporting countries as well as other fundamentals, according to industry sources. New Zealand and Australia have shipping advantages because of their geographic proximity to the large Asian markets. Turkey, a large importer of US tallow, has seen a drop in imports this year as the country suffers from an economic slowdown and a 33 percent devaluation of its currency which increases the cost of imports. Central American countries have also reduced imports because of increasing palm oil consumption.

In the background are ongoing issues over bovine spongiform encephalopathy (BSE), which raises concerns for some importers about animal by-products. Japan and Taiwan have decreased tallow imports, according to an industry source, although product safety was already a concern in Japan even before its recent BSE case. Also, France and Germany adopted their own feeding restrictions on tallow.

Still, producers say cheaper palm oil prices are the major reason behind lower trade volumes for tallow, not BSE. One producer even says that the BSE situation has buoyed foreign demand for US tallow this year. "The EU commission exempted animal fats from its ban on animal proteins in feeds, requiring only that they have to be completely filtered. Buyers early this year turned to the US and Canada due to the decline of tallow supply in Europe as beef production in the EU was sharply reduced following the spread of BSE and foot and mouth disease," the producer adds.

In addition to the lower exports, domestic market factors also make US prices for tallow less competitive. "Basically, the industry is dealing with the soybean material market. The industry competes heavily with soybean products, particularly in the feed sector, so with soybean prices down, [it is] much so with tallow," says one industry observer. "For industrial use, palm oil has also become a big factor domestically. US use of tallow for soap production really dropped last year," the observer adds.

Domestic consumption of inedible tallow and greases slipped 2 percent last year from 3.7 billion pounds in 1999, according to the US Bureau of the Census. Consumption for edible tallow, however, went up 6 percent from 428 million pounds in 1999.

For soap production, inedible tallow consumption declined sharply from 229 million pounds in 1999 to 148 million pounds last year. Consumption for feed use, which accounts for more than half of total rendered fat consumption, dipped slightly from 960 million pounds in 1999 to 908 million pounds. Although this year, according to producers, demand from the feed sector has been outstanding and seems to remain good through February next year.

Outlook for tallow depends on the soybean and palm oil markets. Although, based on the general consensus about the entire fats and oils complex, prices for tallow are expected to be better next year. "Oils and fats inventories should start decreasing due to increased demand," says Mr. Kilanowski. "As far as tallow and greases prices are concerned, we are now very competitive with palm oil, which will increase US exports for the next few months. And this is something we have not seen for sometime," he adds.

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