Safflower Oil Market Stable, Demand Outlook Promising

01 December 2003 00:00  [Source: ICB Americas]

Despite the short-term supply shortage experienced in the third quarter, the overall condition of the safflower oil market in 2003 has been relatively stable. Availability is said to be sufficient to satisfy demand, although some say there is currently a slight excess in supply due to lower export demand this year. Most producers, however, are optimistic of an increase in safflower oil consumption in the near future because of a strengthening appetite for healthy and trans fat-free oils, as well as the current tight global vegetable oil supply projection.

"The US safflower oil market is currently stable despite the sharp decline in exports to Japan," says Joevic Fabregas, vice president, sales and marketing at California Oils Corp., a safflower oil producer and exporter. "Supply is sufficient and although it is still too early to tell, safflower seed prices could go higher with the recent sharp increases seen in the other vegetable oil markets."

For 2003, total US safflower production yields were near to slightly below average compared to last year's crop. The US Department of Agricul-ture estimates 198,000 acres of safflower harvested this year compared to 196,000 safflower acres harvested in 2002. Overall safflower acreage planted this year is at 213,000 acres, 3 percent below last year's 219,000 acres.

"The largest producing state, Cali-fornia, had safflower yields that were approximately 5 percent less than normal due to a combination of very cool springtime weather, which quickly changed to very hot temperatures at the critical flowering stage," says John Gyulai, president of San Francisco-based Oilseeds International Ltd., also a major producer of safflower oil. "Saf-flower crops in Idaho and Utah also suffered from very hot and dry weather and saw the poorest regional yield results. However, safflower yields from Mon-tana, North Dakota and South Dakota were slightly above average, with isolated areas realizing their best yields in many years," Mr. Gyulai adds.

Growers usually produce safflower under contract to processors, which historically have provided good control in keeping supply and demand in balance, notes Mr. Gyulai. "Suppliers look to contract acres with growers and sell oil to consumers simultaneously. Actual yield results versus expectations have sometimes led to smaller or larger crops than expected, but generally the production has not varied widely from forecasts, especially in California."

However, this crop year (September 2003 to August 2004) has seen slightly higher excess stocks, as several suppliers have contracted safflower acres based on forecasted sales, some of which did not ultimately materialize. Much of the unsold material is attributed to lower export demand, especially from Japan. Some suppliers say they will have to reduce their contracting acres for the 2004 crop if the excess supply is not consumed this year.

Much of the safflower oil produced in the US is exported to Japan. Japa-nese consumption of US safflower oil, however, continues to weaken, as the popularity of canola and olive oils in Japan have displaced some of the demand. This year, safflower oil exports to Japan have already shrunk by 50 percent compared to last year, according to one producer. From January to Septem-ber, the US Department of Commerce placed Japanese imports of safflower oil at 13.8 million pounds with an estimated value of $6.2 million. Last year, total safflower oil exports to Japan were 31.7 million pounds valued at $14.4 million.

With more than adequate supply, domestic safflower oil prices have come down this year by around 8 to 10 percent, depending on end-use markets. Prices for safflower this year have been stable with prices comparable to last year at around $250 per ton. The current safflower oil price on the West Coast, free on board (f.o.b.), bulk, is quoted at 65 to 68 cents per pound, while East Coast edible safflower oil in drums, f.o.b., is placed in the mid-70 to mid-80 cents per pound range.

"Safflower oil prices have definitely started to come back down, but I don't believe they will get back to the prices that were offered in 2002 and the beginning of 2003," says Mary Ann Siciliano, national sales manager at the Wilton, Conn.-based safflower oil supplier Arista Industries Inc. "Supply this year is pretty good and pricing should remain steady. Demand should also be stable and usage will continue to increase."

Some producers are optimistic of prices going up given the current upward trend in global vegetable oil pricing. Demand for high oleic safflower oil is also expected to increase with growing consumer concern about trans fatty acids and saturated fats. "Safflower oil may also follow the trend, given the recent upsurge in the soybean markets," says Neil Turnbull, an official from the Cul-bertson, Mont.-based processor Montola Growers Inc. "We are optimistic of safflower oil pricing leaning towards higher values for next year."

"The higher general vegetable oil prices, coupled with more demand for specialty oils, provides a healthy environment for oils like safflower oil," says Oilseed International's Mr. Gyulai. "Concern about trans fats could cause people to consider oleic safflower oil as a possible solution for their non-hydrogenated, high stability needs in special applications. However, more time will be needed to see how both these factors could influence safflower for 2004," adds Mr. Gyulai.

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