Vegoil market: increasing price spreads between sunflower oil and soy oil

The decline in Ukraine’s sunflower production inevitably leads to an increase in world sunflower seed /sunflower oil prices. This is no surprise because Ukraine is the main exporter of sunflower oil (SFO). The country’s share in world trade used to be at 45-46%, being at 40% in MY 2021/22.

The USDA forecast for MY 2022/23 looks quite pessimistic: Ukraine is predicted to lose its leadership position with its share in the global trade down at 33%. UkrAgroConsult estimates the export of sunflower oil at a higher level than USDA.

The current 2022/23 MY is an exception to the rule. A sharp drop in the sunflower harvest in Ukraine did not lead to growth, but, on the contrary, to a drop in prices for both sunflower and oil on the world market under the influence, first of all, of the war.

The situation with the harvest in Ukraine is catastrophic, a drop of 34% does not happen often. But the world balance looks completely different: record production and supply of oilseeds and vegoils, a second record season for sunflower oil production, sunflower stocks are also record high.

Taking into account the fundamental factors of the world market, it is clear why the expectation of price growth did not come true. The situation is also worsened by the record low import demand for oil under the pressure of the risks of transportation through the Black Sea. USDA forecasts the lowest since 2015/16 MY. The attractiveness of the price of sunflower oil compared to soybean oil can change the situation for the better.

The crush margin calculation confirms sunflower processing is currently highly marginal compared even to the pre-war times. This is confirmed also by the pace of sunflower oil production and especially by exports shipments. This is quite a good result in view of the harvest slump.

But against the background of the active export of oil, there is an equally active export of sunflower. According to the results of the season, the export of sunflower can significantly renew the record.

This scenario is possible provided crushers raise sunflower seed prices and make sunseed more profitable for farmers to sell on the domestic market rather than export “golden” sunflower to neighboring countries. In the future, the upward trend in oilseed exports may play a cruel joke on Ukrainian crushers, who may face a shortage of sunflower for processing.