Animal Fats Prices Spike on Canadian BSE Case

09 June 2003 00:00  [Source: ICB Americas]

Prices for tallow and all animal fats have surged recently in the wake of reports of bovine spongiform encephalopathy (BSE), better known as mad cow disease, in Canada, the third largest exporter of tallow in the world. Several countries, including the US, have temporarily banned Canadian exports of most animal-derived meats, rendered proteins and rendered tallow, causing rendered fats and oils consumers to seek other sources. In the US, the surge in demand comes at a time when nearby supply is also somewhat short, according to traders, driving prices higher for tallow, lards and greases.

"The ban stopped tallow and grease that normally goes to northern US cities and feed areas from delivering, causing buyers to scramble for fats needs they thought they had already covered," says Bill Hurley, president of Palos Heights, Ill.-based Hurley Brokerage, which provides independent sales representation to the rendering and packer rendering industries.

"This came at a time when top grade fats were already somewhat oversold and the hog kill was starting to seasonally decline. On top of that, a shipment halt of Canadian tallow to the Far East has also induced a scramble in foreign demand, generating a severe spike in prices with the sudden surge of 30 day demand in an already 'sold out for 60 days' market," Mr. Hurley adds.

Within the last two weeks, spot prices for rendered tallow and other animal fats surged by 2 to 3 cents per pound. Tallow prices were last seen at around 18.5 to 19.5 cents per pound while prices for greases were quoted at 17.5 cents per pound for white grease and 13.5 cents for yellow grease. Lard pricing spiked from 16.5 to 19.5 cents per pound within two weeks.

The price outlook for tallow and animal fats for the rest of the year will mostly depend on the Canadian situation, according to most analysts. "The uncertainty of the BSE situation in Canada makes it difficult to predict with any sense of confidence as so many factors can affect market price," says Tom Cook, president of the National Renderers Association Inc. "Whether this will be short term or long term will depend on how the Canadian investigation ends and how long it will take for foreign markets to open up and start buying Canadian products."

"When the Canadian border is once again opened to the US, the price of US tallow will most likely decline since there will be Canadian tallow looking for users," says Bill Dieterichs, market analyst and editor at the Jacobsen Publishing Company, which provides oilseeds, oils and fats market analysis. "The big question now is how many countries will allow Canadian tallow to be imported. If they all once again take Canadian material, the US price will return to a more normal price pattern."

Analysts say monthly price averages for tallow this year would probably stay at around 15 to 18 cents per pound if all remains relatively unchanged. Even with the eventual release of Canadian products, prices will take some time to adjust as sellers are well sold for over a month, according to Mr. Hurley.

For 2003, tallow prices could average 16.5 cents per pound, a 3 cent increase from the 2002 yearly average and a 22 percent increase year over year, says Mr. Dieterichs. "During the first four months of 2003, the average price of bleach fancy tallow was 16.4 cents, so the current market of 18.5 cents is not a price spike that may go away quickly," he adds.

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