Source: Bloomberg

Cooking oils, left behind in this year’s surge in agriculture prices, are poised to catch up with grains as record demand cuts stockpiles by the most in 17 years.

Inventories of soybean oil and palm oil, used by Nestle SA and Unilever and in everything from Hellmann’s mayonnaise to Snickers candy bars, will drop 12 percent in the coming year as China and India increase consumption 11 percent, U.S. Department of Agriculture data show. Food prices climbed in September to the highest level since the crisis in 2008 that sparked riots from Haiti to Egypt, the United Nations says.

“China’s economy is growing and there’s no reason why the country will take any less food next week, next month, or next year,” said Steve Nicholson, a commodity procurement specialist at International Food Products Corp., a distributor and adviser on food ingredients in Fenton, Missouri. “We’ve been able to produce more food in the past 2,000 years, but can we do it fast enough to meet the demand from China and other emerging economies to stave off a crisis?”

Increasing wealth in Brazil, India and China is boosting demand for grains, dairy, meat and cooking oils. While Sime Darby Bhd., the world’s biggest listed palm-oil producer, is benefiting from rising prices, governments from Beijing to New Delhi are trying to curb food inflation by raising imports, limiting exports or selling stockpiles. Per-capita use of vegetable oils in China has more than doubled in a decade, said Bill Nelson, a senior economist at Doane Advisory Services Co., an agricultural research and advisory company in St. Louis.

Farm Costs Soar

The Standard & Poor’s GSCI Agriculture Index of eight futures climbed 30 percent this year, led by corn, wheat, coffee and cotton, as floods in Canada, Pakistan and China and drought in Russia and across Europe killed crops. The economies of China and India, the biggest consumers of cooking oils, are growing at three times the speed of the U.S.

Water scarcity, increasing global temperatures and the potential for dry weather may threaten farm production, said Nomura Holdings Inc. economists and strategists including Robert Subbaraman in a report dated Sept. 8. About 1.8 billion people will live in countries or regions with absolute water scarcity by 2025, according to the UN Food & Agriculture Organization.

The CRB/Reuters U.S. Spot Raw Industrials index, a gauge of 22 commodities including butter and soybean oil, rose to an all- time high on Oct. 25. Meat prices advanced to a two-decade high in August, according to a UN index.

Food Demand

Record demand for food and biofuel may combine with delays to planting in South America to extend gains in cooking oils, said Murali Krishna P.V., chief executive officer of TransGraph Consulting Pvt., an adviser to Bunge Ltd. and Cadbury Plc.

Palm oil traded on the Malaysia Derivatives Exchange may rise 18 percent to 3,600 ringgit ($1,161) a metric ton by March, extending this year’s 15 percent advance, said Murali, based on the Oct. 29 close. Soybean oil traded on the Chicago Board of Trade may gain 16 percent to 57 cents a pound, adding to this year’s 21 percent rally, he said in an interview from Hyderabad, India. Palm oil advanced 1 percent today to end at 3,092 ringgit per ton, the highest finish since July 2008.

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