USDA GAIN: Malaysia Oilseeds and Products Annual 2012

USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed

Reports » Malaysia » USDA GAIN: Malaysia Oilseeds and Products Annual 2012

27 March 2012

Soybeans are still the leading U.S. oilseed product export to Malaysia, with U.S. soybean sales expected to be around 350,000 tons in 2011/12. Meanwhile, Argentina will continue to supply the majority of soybean meal imports. Lower demand from the swine and broiler sectors will reduce soymeal imports and local crushing activity in 2011/12, but the continued switch to using full-fat soymeal will still favor U.S. soybean imports.

Following two consecutive seasons of strong growth, palm oil production is forecast to increase modestly to 18.5 million metric tons in 2011/12, and then rebound to stronger growth in 2012/13, reaching 19 million tons. Exports are forecast to increase to 17.4 million tons in 2012/13, and then grow to about 17.6 million tons in 2012/13. Palm kernel oil exports are forecast to remain relatively stable at just over 1 million tons.

Executive Summary:

Soybeans are the leading U.S. oilseed product export to Malaysia, and increased usage of full-fat soymeal continues to favor U.S. soybean imports. Despite expectations for a decline in soybean imports in 2011/12 due to a weaker feed demand from the swine and broiler sectors, the U.S. is expected to export about 350,000 tons, and maintain a dominant market share. As the broiler sector recovers in 2012/13, soybean imports are forecast to rebound. Fueled by strong consumer demand and a diversification of soy-based products manufactured in Malaysia, demand for food quality soybeans is expected to grow steadily at 3.7 percent annually.

Due to a reduction in demand from the swine and broiler sectors, soybean meal imports are expected to decline in 2011/12. Soybean meal demand will rebound only slightly in 2012/13 as local full-fat soybean meal increasingly substitutes for imported ‘defat’ soybean meal. Argentina will maintain its hold on this market, accounting for over 90 percent of the imports. U.S. DDGS exports totaled about 60,000 tons in 2011, and are expected to remain around that level.

Crude palm oil (CPO) production is expected to increase only modestly to 18.5 million tons in 2011/12, and then reach 19 million tons in 2012/13. The increase in matured hectare equivalent in 2012 is expected to be offset by stagnating yields linked to biological stress. Palm kernel oil (PKO) output is expected to increase to 2.12 million tons in 2011/12 and then increase only slightly again in 2012/13.

Palm oil exports are forecast to increase to 17.4 million tons in 2011/12 and PKO at 1 million tons. With expectations for further production growth, and continued strength from import markets, palm oil exports are forecast to reach 17.6 million tons in 2012/13. China India, and Pakistan continue to be leading markets, but shipments to the United States continue to be strong, topping 1 million tons in 2011.

Area under coconut cultivation has dropped steadily and copra output will continue its downward trend. Both imports and exports of coconut oil are expected to increase in 2012 and 2013.

In line with a decline in soy crush, local soybean oil production is expected to drop to 57,000 tons in 2011/12 and decline further in 2012/13. Soybean oil consumption accounts for less than 5 percent of total domestic food oil use, where it is consumed primarily as premium-quality cooking oil and priced well above the price for palm oil. With lower production, soybean oil exports are forecast to decline into 2012/13.

Due to depleted fish stocks, fishmeal production is forecast to continue declining. Imports are about 20,000 tons annually.

Total Oilseeds

Soybean

Imports

In 2011/12, soybean imports are forecast to decline about 3 percent due to weaker demand from the swine and broiler sectors. The decline in crushing will be further eroded due to increased usage of fullfat soybean meal. The food soybean market is expected to fare better with a steady annual rise of 3.7 percent, and major growth coming from soymilk beverage demand. The U.S. will remain the top supplier, exporting around 350,000 tons, and holding dominant market share.

Argentina is the second leading supplier, and Canada continues to be the main supplier of ‘Identity Preserved’ soybeans for food processing.

In 2012/13, with a revival in demand from the broiler industry, imports are forecast to rebound. However, soy crushing is still expected to decline as farmers trend to using full-fat soymeal. The increased usage of full-fat soymeal favors the import of US soybeans. Imports of food quality soybeans are expected to continue to grow steadily in line with expectations for continued growth in consumer demand for soy-based food products.

Consumption

Consumer demand is forecast to remain robust, and manufacturers are developing alternative uses for soy in foods, and soy use in foods is forecast to grow 3.7 percent annually. Rising health consciousness among the growing middle-income population is increasing demand for soy food products. Malaysia is one of the largest producers of soy drinks in Southeast Asia, with exports going to neighboring countries as well as Australia, Japan and Europe. Most of the food beans are brought in via containers, primarily from Canada and the U.S. About 60,000 tons of identity preserved food grade soybeans are imported annually.

Soybean crushing is expected to decline 12 percent in 2011/12, in view of a weaker demand from the livestock sector and the gradual switch to full-fat soymeal. In addition, local traders are now using more DDGS in their feed formulation. [Please see ‘Consumption’ section under Total Oilmeals (Soybean Meal) for the development of the livestock/feed sector]. Crushing is forecast to rebound slightly in 2012/13 as the broiler sector recovers from its cyclical downturn.

Trade Policy & Market Access

Malaysia passed a Biosafety Act in the summer of 2007. Under these Biosafety regulations, approval is required for any release and imports of LMOs (‘Roundup Ready’ soybeans have been approved for import). Although the regulations have been operative since Nov 1, 2010, a grace period of two years was provided. In addition, on July 8, 2010, the Ministry of Health announced regulations that require mandatory labeling of food and food ingredients obtained through modern biotechnology. A two year grace period was also given till July 8, 2012. While implementing details of the food labeling guidelines have not been made public, a list of processed products exempt from the labeling requirement and a threshold allowing for adventitious presence may be included in the final language of the regulations. The labeling requirement would not apply to meat reared on feed containing GMOs.

Palm Kernel

Palm kernel output is forecast to grow, reaching about 4.6 million tons in 2011/12 and 4.8 million tons in 2012/13. [Please refer to ‘Palm Oil’ section under Total Oils for more details]. There are no exports of palm kernel as all domestic output is crushed locally.

Copra

Area under coconut cultivation has dropped steadily, replaced by the more lucrative oil palm. Area is expected to continue falling, with a concomitant decline in copra production. Harvested area in PS&Ds is only for copra delivered to crushers and not for food-use. This explains the big gap between planted and harvested area. Most of the copra is consumed as food (desiccated coconut, coconut cream, etc), leaving a small amount for the crushing sector. The outlook for copra output is on a slow downtrend in the near term.

In 2012, production is expected to be about 29,000 tons and imports about 31,000 tons, mainly from Indonesia. Exports were insignificant.

Total Oilmeals

Soybean Meal

Production and Imports

Meal production is forecast to decline and imports are forecast to remain relatively flat through 2012/13 due to weaker demand from the swine and broiler sectors and the increased use of full-fat soybean meal rather than regular soybean meal. Expectations for lower supplies from Argentina will also curb imports in 2012. In addition, local traders are now using more DDGS in their feed formulation. Nonetheless, Argentina should continue to dominate over 90 percent of the domestic soybean meal import market. Imports of US soybean meal are expected to be in the 10,000 to 15,000 ton range.

Consumption

The economy is performing relatively well and demand for meat remains firm. However, the pork and broiler meat sectors have been producing a surplus, leading to a decline in prices in the first quarter of 2012. As a result, the hog/poultry population is expected to be reduced in 2012. The egg sector, on the other hand, remains strong and the ex-farm prices for eggs have been stable at $0.11 per unit. Given the less than optimistic outlook for demand from the swine and broiler sectors, soybean meal for feed is forecast to decline in 2011/12 and 2012/13. As mentioned above, feed compounders are turning increasingly to using full-fat soybean meal, leading to a decline in local crushing.

Palm Kernel Meal

In line with the increase in palm kernel crush, palm kernel meal (PKM) production is expected to increase to 2.4 million tons in 2011/12. With a very small domestic beef and dairy sector, only minimal quantities are consumed locally, and almost all is exported. During the first 9 months of CY 2011, 1.5 million tons of PKM were exported, with the bulk going to New Zealand, South Korea, Germany, the Netherlands and the United Kingdom. With another expected increase in palm kernel crush, about 2.2 million tons is forecast to be exported in 2012/13.

Copra Meal

Continuing its downward trend, copra meal output is expected to decrease to 21,000 tons in 2012. Any increase in copra meal production over the near term will depend on copra imports, mainly from Indonesia. The domestic feed industry consumes most of the local meal output. Exports are insignificant.

Fish Meal

Due to depleted fish stocks, fishmeal production is expected to continue its downward trend. Imports from traditional sources such as Peru and Chile have altogether disappeared as they are also experiencing over-fishing. Malaysia is trying to source from other non-traditional suppliers such as India and Italy. Exports amounted to 18,000 tons in 2011, mainly to China, Taiwan and Bangladesh.

Total Oils

Palm Oil

Fruit-bearing area is expected to expand to 4.7 million hectares in 2011/12, while fully matured hectare equivalent (MHE) is estimated to reach 2.4 million hectares. The weather conditions have improved since the last quarter of 2011 and the high CPO prices have boosted incentives for increased fertilizer usage. However, after two years of growth in production, the palms are expected to experience biological stress; hence, yield improvement will be limited in 2012. As a result, CPO production is expected to increase only slightly to 18.5 million tons for 2011/12; the increase in matured hectare equivalent is offset by expectations for stagnant MHE yield growth. In 2012/13, yields are forecast to rebound and MHE will continue to expand; consequently, output is forecast to grow to 19 million tons.

Malaysia is the world’s second-leading oil palm producer and exporter (after Indonesia), supplying about 12.6 percent of global consumption of vegetable oils in 2010/11.

Domestic food use amounts to less than 5 percent of total CPO production. Cooking oil accounts for 80 percent, while margarine/shortening the remaining 20 percent of the edible palm oil market. Palm kernel oil, soybean, corn and coconut account for the other edible oil consumption. The livestock sector consumes less than two percent of CPO output. The remaining palm oil goes to the industrial sector, with a significant amount being used in the oleo-chemical industry. [Please note that industrial domestic consumption in the PSD does not include bulk processed oil exports that are reflected in MY exports].

With palm oil prices hovering above US$1,050/ton, the Malaysian biodiesel industry is struggling, operating at less than 10 percent capacity. A B5 mandate (a blend of 5 percent of palm methyl esters in diesel) has just started to be implemented in stages, but domestic use is not expected to take off sharply in the near term. The biodiesel sector is not competitive in the export market either. Only an estimated 15,000 tons of palm oil is expected to be used for bio-fuel.

Exports totaled 12.7 million tons during Jan-Sep 2011, an increase of 3.4 percent compared to the previous year. The top five destinations (China, Pakistan, India, the Netherlands and the United States) accounted for 54 percent of the total exports. The U.S. is the fifth largest market. Exports during 2011 were an estimated 15.5 million tons, with the U.S. importing about 1 million tons for the first time. Given production expectations, exports are forecast to increase by 1.5 percent to 17.4 million tons in 2011/12 and then grow to 17.6 million tons in 2012/13.

Trade Policy and Market Access

Neutralized, bleached, and deodorized palm olein is fully exempt from export tax, while CPO is subjected to 10 to 30 percent export tax, depending on market price. In addition, selected local palm oil companies with joint-ventures in export markets are given export tax waivers.

Local palm oil refiners and downstream manufacturers allege that Indonesia’s recent changes to it differential export tax regime on refined products vis-à-vis CPO has reduced the competitiveness of Malaysia’s palm oil refining industry. The result, local industry representatives claim, is that the local processing industry will fall behind that of Indonesia’s, stocks in Malaysia will grow, and local prices will fall. Local players have proposed several reforms to combat Indonesia’s differential tax systems, including eliminating the duty-free export quota for CPO and CPKO, increasing the export duty on CPO and CPKO, reviewing the ‘cess’ collection structure, and giving smallholders indirect assistance to in some way offset any reduction in fresh fruit brunch (FFB) prices that might result if CPO/CPKO export taxes were increased.

Opportunities for the Malaysian palm oil industry to develop and commercialize bio-engineered oil palm and palm products would be severely constrained by the Biosafety Act (Please see section on GMO/Biotech Safety Issue under Total Oilseeds), particularly the mandatory labeling requirement. Mandatory GM labeling would be required for low saturated fat and high oleic acid varieties under development. In addition, research and development would be hampered by terms of the Bill.

Palm Kernel Oil

With an increase in palm kernel crushing, palm kernel oil (PKO) output is expected to increase two percent to 2.1 million tons in 2011/12. Stronger growth is anticipated for 2012/13, with PKO output estimated to reach 2.2 million tons.

The local oleo-chemical industry utilized about 1.3 million tons of PKO, about 61 percent of the PKO production in 2011. With 16 oleochemical plants with a capacity of 1.9 million tons, there is much potential for growth in the Malaysian oleo-chemical industry. The sector will continue to compete with overseas buyers for crude as well as processed PKO.

PKO exports are forecast to increase about one percent to one million tons in 2011/12. The main destinations are the U.S., China, Japan, Brazil and Egypt. With an expected bigger increase in PKO output in 2012/13, about 1.1 million tons of PKO are expected to be available for exports.

Soybean Oil

In line with a decline in soy crush, local soyoil production is expected to drop to 57,000 tons in 2011/12. Soy crush is expected to continue to decline in 2012/13 and domestic soyoil output is forecast to decline to 54,000 tons. Soybean oil consumption accounts for less than 5 percent of total food use consumption of oil in Malaysia. Soybean oil is consumed primarily as premium-quality cooking oil and is priced well above the price for palm oil. It is also blended with local tropical oils and sold in the domestic retail market. At times, Malaysian soy crushers continue to find it profitable to refine imported crude soyoil for reexports to third countries. About 116,000 tons of value-added soyoil is forecast to be exported in 2011/12, with Philippines, Australia, Singapore and Indonesia being the main destinations.

Coconut Oil

Total crude coconut oil imports are expected to increase to 180,000 tons in 2012. Most of the imports are further refined and re-exported to third countries. Exports of refined coconut oil are forecast to increase slightly to 155,000 tons in 2012, with the major markets being Singapore and Russia. Coconut oil accounts for less than 1 percent of local consumption.

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