Strong palm and rapeseed oil may raise food costs

Vegetable oil markets have enough support to remain firm this year with rapeseed and palm oil likely to outperform, which could put pressure on the food industry to increase prices further, analysts say.

Prices of vegetable oils have pulled back in recent weeks after surging to all-time highs in February and early March on major Chinese and European buying and a flood of fund investments in commodity markets.
The food industry relies on vegetable oils such as palm and rapeseed for products ranging from salad dressings and margarine to biscuits and cakes, and many firms have already raised retail prices as they feel the pinch from surging raw material costs.

And while demand for vegetable oils from the European biodiesel industry is dampened by profitability problems, analysts said the animal feeds industry was using more oilmeals to compensate for higher grains prices.

“In the short to medium term, there is enough support for vegetable oil prices to increase a bit further,” said Dirk Jan Kennes from Rabobank’s Food & Agribusiness Research and Advisory division.

Guardian