Extreme weather in Europe is endangering the oil supply, and genetically modified crops may be a viable answer. The olive oil business in Europe is in danger as a result of harsh weather, with prices rising by more than 20% month on month and 114% year on year as dry, hot weather affects output in Spain and Italy. Market participants are anxious about where these prices will stop, and because the market cannot produce enough to fulfil demand, prices will remain high until the end of 2024.
Last year’s drought, followed by a spring flood and a summer heatwave, drastically reduced available supplies in major producing regions of Spain and Italy. Production was about 600,000 tonnes last year, down from 1.5 million in 2021. Although global output is predicted to rise in 2023, the globe will remain in deficit in 2023/24. As a result, olive oil prices have reached all-time highs, more than tripling in the previous year.
Vegetable oils are also under pressure, with retail prices expected to stay stable for the foreseeable future. To assure supply stability and minimize market volatility, several merchants took advantage of decreased wholesale rates and purchased protection for the next year. Vegetable oils, on the other hand, are subject to both the weather and events in Ukraine. Last year’s Ukraine war had a significant influence on oil prices, sending sunflower prices to record highs and causing ripple effects throughout the oil industry. This has now stabilized, and prices for sunflower, rapeseed, soya, and palm oil are all lower than they were before the war.
In order to defend their own markets, Poland, Romania, Bulgaria, and Hungary have all prohibited Ukraine imports. Customers who shifted from sunflower to other oil crops, such as rapeseed and palm, have been hesitant to return to sunflower as the Ukraine war has progressed. Rapeseed is functioning remarkably well, with plentiful supply and competitive prices, as the EU prepares to produce a record harvest in 2023.
There is still significant uncertainty in the market, and events in Ukraine could significantly impact future prices. The flooding caused by the destruction of the Kakhovka hydroelectric dam, the bombing of the key port of Odesa, and the ending of the grain agreement with Russia don’t just have a physical impact on the supply of oilseed, they have a psychological impact on markets and could push prices for sunflower and other oils up over the long term. Sunflower oil is priced slightly higher at the moment due to the uncertainties surrounding Ukraine, but lower demand from customers unwilling to switch back to sunflower for fears over supply is keeping costs lower.
The weather is also influencing pricing, with hot and dry weather in the United States and Canada, the European summer heatwave, and rainy weather in the United Kingdom throughout July all pushing rapeseed prices up. Although the outlook for the European rapeseed crop appears to be favourable, expectations have been significantly reduced due to high heat and a lack of rain.
There are no silver bullets for mitigating the effects of harsh weather, and commercial types used in the US are already quite resilient and developed to withstand big temperatures and weather swings. One aspect of the solution might be to use GM solutions to strengthen them and enhance yields. The most important trend to monitor is the impending EU Deforestation Regulation, which will make it illegal to import palm oil into the EU unless it is deforestation-free and produced in compliance with appropriate legislation in the country of production.