By Johan Gouws, Senior Oilseed Dealer, Rand Agri
Johan Gouws: Senior Oilseed Trader
To better understand the oilseed complex, we should discuss the fundamental factors of supply and demand in the complex:
Soybeans and sunflower seed supply
Production of these oilseeds are taking an interesting turn, thanks to the substantial research and effort invested in the development of better cultivars. Processors pay significant premiums for sunflower seed with a good oil content.
Please contact Rand Agri if you would like more information or are interested in these cultivars.
As far as soybean cultivation is concerned, more and more soybeans are being planted in the west (west of the N1 highway). Soybeans are used for crop rotation, since these new cultivars are well suited to the area, but also because of the significantly higher yields of subsequent maize crops.
The current soybean balance sheet appears to be “heavy”, and thus as if there is a surplus of soybeans available to local processors. “In my opinion this conclusion is not correct, since the processing capacity of almost every plant in South Africa has greatly increased. What is more, there is good money in soybean processing – you can earn up to R800/t. If South Africa achieves the estimated harvest of 1,9 million tons of soybeans, these margins will no doubt encourage local processors to try to processes all of it.”
Processing margins on sunflower is also currently extremely high. Processors are therefore trying to get hold of every last kernel in order to process it further. The difference is however that unlike in the case of local soybeans, a record sunflower crop is not on the cards. The price of sunflowers is therefore likely to decrease by year-end and move closer to import parity, which will place sunflower processing margins under pressure or even wipe it out.
Demand for soybean and sunflower products
Over the last few years, a great deal of progress has been made with regard to the quality of soybean meal, which is mainly used as chicken feed. Soybeans are mainly processed as soybean meal (SBM) whereas the oil (18%) is the cherry on top – merely a by-product. The improvement in quality and the fact that local SBM consumers are using increasingly more South African SBM (a 16% increase), makes a huge contribution to the industry. Thus less soybean meal is imported from Argentina. This healthy competition also drives the quality of the soybean processing chain upwards. The soybean industry appears to be healthy thanks to an increasing demand, larger production capacity, more profitable production and also because it improves the soil quality and the fertility of soil for maize crops.
The immediate demand for sunflower seed is very high, due to the high processing margins and oil prices on the international market which is the best in months. Sunflower is mainly processed for oil (42%) and not for sunflower oil cakes (SFM) as is the case for soybeans.
The demand for sunflower oil is usually at a peak by the end of the year, but it seems likely that we will have to import sunflower oil by year-end, since there will not be any local sunflower seed left for processing. What is more, the margins on sunflower oils are currently so much higher that from a profit perspective, it does not make sense to hold onto sunflower oils until December and to then sell it at much lower margins
The sunflower industry will have to make the necessary adjustments quickly, given that the new kid on the block, soybeans, is currently enjoying prominence. These adjustments/improvements will have to be improvement of sunflower oil production in the seed. Nevertheless, sunflower production currently remains profitable, and there is a strong demand for oil products.
The oilseed complex is a highly integrated playing field where different commodities and production areas interact with each other in a variety of ways and where the outcomes are infinite. The oilseed complex appears to be a growing market, due to a growing population across the entire Southern Africa. This market offers positive prospects for our buyers of oilseed products and local producers alike.