Vegetable oil market eased a bit to take a breath & Joko Widodo continues to restrict export

The graph updated on October 3rd shows markets eased a bit to take a breath. We have the new crops of sunflower seed and soybeans coming and the seasonal increase in palm oil production. Markets now moved sideways but are also looking ahead for South American soybean and European rapeseed plantings. The GLOBOIL conference held in India late September concluded that 2020 would be the year of price recovery as world demand for food and energy rises and stocks go lower.

The US Department of Agriculture (USDA) lowered its GLOBAL soybeans production forecast a little to 341.4 million tons but stocks at the end of the marketing year are still to be the second largest ever. The new crop in the USA was lowered to 98.87 million tons, 20% lower than the 2018 record. With high global stocks, record carry out in the US and weaker global demand for soybean meal the question raises if recent price increases are sustainable. The weaker demand for soybean meal may of course lead to higher soy oil prices, to finance a larger share of the crush margin. Some analysts believe that the demand for soybean meal might rebound in early 2020 when demand for animal feed picks up; some see an increased use of soymeal in aquafeed and broiler (chicken)feed. In Europe we experience a current tightness of soy oil and the market seems dried up till Christmas. Not too clear if that comes from higher demand or from lower supply. The harvesting in the US ending in 3 to 4 weeks should bring more clarity in market direction. Biodiesel production increases in Brazil could also severally impact the market.

In the past sunflower seed oil was always at a premium over soybean oil but since the major production expansion in the Ukraine, Russia and Romania that premium faded away. Sun became a ‘cheap alternative’ in some markets so demand grows and there are rumors of more sun oil being used for biodiesel production. Analysts expect the market to bottom out in the next few weeks as the 5th Black sea sun seed bumper crop in a row comes in and continues to prompt farmer selling which is weighing on the market in the short term. China came in as a big new consumer and also Iran and India have a big appetite. Some think the premium over soy may return. Meanwhile premiums for hi-oleic sun oil over classic dropped about 7%.

The rapeseed oil supply in Europe is smaller than expected and crop losses in Australia will limit European imports. Very dry conditions at sowing in 2018, pest issues and dry weather at the end of the cycle brought this year’s harvest to a 13-year low of 16.9 million, compared to 20 million tons in 2018. The forecast for next harvest with an 8% lower acreage is 19.3 million tons in 2020 (6 million hectares averaging 3.25t/ha). Rapeseed oil will keep its high premium over sunflower and soybean oil. Petroleum price and biodiesel margins have a big impact on further price developments.

For palm oil, on the long-term analysts expect a large stock drawdown as trees have grown older and suffered dryness stress and plantations cut on fertilizer. In December 2018 ending stocks in Malaysia peaked at 3.2 million tons and this year market expects December 2019 stocks at ‘only’ 2.6 million. We are in the high production season and see stock building. India imported less, struggling with major floods coming from heavy Monsoon rains and a weaker economic outlook. The president Joko Widodo of Indonesia, the world’s biggest palm oil producer and exporter continues to work on the strategy to keep added value in the country by restricting the export of raw materials. They already have an export ban for nickel ore (used for stainless steel and rechargeable nickel-cadmium batteries) to accelerate the establishment of domestic smelters so that Indonesia could sell value-added nickel products…. and nickel prices soared. They also want to export less palm oil and make more biodiesel, aviation fuel, cosmetics etc.

In a recent report the ‘Rainforest Foundation Norway’ points to flight shame and the role of aviation in the climate crisis. Expanding biofuel use in aviation will cause the last thing the world needs right now: increased deforestation (additional demand in 2030 of 35 million tons of palm oil, 3.5 million tons of palm oil by-products (PFAD), and 35 million tons of soy oil). The current global annual aviation fuel consumption is about 300 million tons and the global annual production of palm oil is around 75 million tons.

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