Commodity Oils and Fats
Oils and fats differ only in that the former are liquid at ambient temperatures and the latter are solid. The term butter is applied to some solid tropical vegetable fats such as cocoa butter and shea butter. The term commodity is applied in an arbitrary manner to those materials produced in sufficient quantity to be of interest to market analysts.
These are products of the agricultural industry covering fields/plantations, animal husbandry and rendering, and forestry. It is useful to divide this range of products in a number of ways.
- The majority are of plant origin, though the four animal fats (~25 million tonnes in 2009/10) still provide almost 15% of the total oils and fats detailed in Oil World.
- Annuals should be distinguished from tree crops such as the products of the oil palm and the olive. The trees have to be planted and usually take a few years to come to maturity. Oil palms are profitable for 20-30 years but then should be replaced by new trees. Harvesting is a manual operation and presents difficulties with high trees. The olive has a longer profitable life. Decisions about such tree crops are made infrequently. With annuals (e.g. soybean, rapeseed, sunflower) farmers have to make a decision each year depending on agricultural factors such as healthy rotation and on their perception of profitability in comparison to other crops, which may be other oilseeds or cereals such as wheat. In favoured places it may even be possible to have two crops in one season. A response to oversupply or undersupply is more quickly achieved through annuals (to plant or not to plant?) than through tree crops (to fertilise and/or irrigate or not?).
- Another important distinction in relation to controlling supply is to distinguish major products from by-products and to recognise co-products. Examples are given in the Table below. For by-products the amount of oil produced is not dependent on the oils and fats market but on some other commodity.
The supply of oils and fats is dominated by four sources and it is these above all other that will be changed most to meet shifting demand. These are palm (and palmkernel), soybean, rapeseed (canola), and sunflower oils. Figure 1 below shows how over the 10-year period (2002/2003 to 2011/12) world production of 9 vegetable oils has increased year-on-year. The average annual increase over these ten years has been 6.3 million tonnes. The annual increase over 10 years (and more) has been built into expectations with the consequence that small rises lead to a bull market with higher prices and consequent concern by consumers, particularly the poorer ones. In contrast, large increases produce a bear market with producers concerned about oversupply and falling prices looking for new uses of oils and fats.
Figure 1. Annual increases (million tonnes) in production of nine vegetable oils from 2002/2003 to 2011/12.