Covid-19 has worldwide impact on society and food chain.
Your Bi-weekly update on edible oils & fats by AvenoMarch 27th, 2020
One third of world population now at home.
With the outbreak of covid-19 reaching the status of a pandemic and confining about 2.6 billion people to their homes, the disease has a major impact on all of us and it disrupts the food chain. The spread of the virus forces us to rethink the world’s food supply chain. For instance, we realize now how important supermarkets employees are. Animals and humans need to eat and therefore governments declared the food supply chain to be crucial for society, and thus allowing ‘essential workers’, to continue to work, making sure the production and distribution continues.
Nobody knows where this train is headed yet.
Nobody knows where this train is heading, but we’re all aboard it together. It is impossible to say how many restaurants are closed around the world. Nor is it possible to calculate how much less milk, butter, meat, frying oil, sugar, flour, mayonnaise, béarnaise, ketchup, etc. will be consumed out of home in 2020. For example, less business and less earnings are clearly reflected in the course of the Yum! Brands Inc. stock price (+ 50.000 restaurants in 150 countries like KFC, Pizza Hut, Taco Bell…):
Source: Market Watch
On the other hand, food delivery firms thrive, resulting from a surge in demand. In the U.S. the meal delivery company (meal-kit delivery services /weekly boxes of pre-portioned ingredients) Blue Apron’s shares soared from $2 to over $16 while its German rival HelloFresh also saw a dramatic jump in its stock. Remains to be seen if it will last but the lockdown is also forcing people to spend more time cooking at home = more demand from retail, also bottled oils and other oils & fats.
Consumers around the world are stockpiling foodstuffs at home, in many countries people are seriously losing purchasing power and will be switching to cheaper diets (e.g. less meat) and closed borders are hindering logistics and preventing foreign seasonal manpower to help harvest labor intensive crops like now asparagus, and later maybe other vegetables and fruit.
Amidst supply problems palm oil torn between two trends.
India the world’s largest importer of edible oils and fats (and palm oil) went in lockdown for three weeks to tackle the covid-19 epidemic. Any demand destruction there has a very bearish impact on palm and other oils.
Malaysia’s government gave in to industry pressure, reversing a ban on palm oil plantation work as the sector is considered an essential part of the country’s economy. But in both Malaysia and Indonesia palm oil production is down. The market is torn between bearish demand developments (deteriorating economies/corona) and bullish supply fundamentals.
In Argentina there were no clear measures on what would and would not be allowed to enter their port terminals. On top of that port workers announced strikes over unsafe working conditions just before the government stepped in last week to close the borders. And also, Brazil has its corona virus problems and related “logistical challenges” to tackle, causing supply uncertainties.
In Europe it is estimated that movement restrictions caused diesel demand to drop 70%. So, demand for rapeseed, palm and sunflower seed oil from biodiesel producers is also dropping dramatically.
Source: European Commission / IGC, Monthly average close March 26th
China on the road to recovery
We noticed governments trying to secure domestic food supply, further threatening global trade; and we cannot exclude long lasting shutdowns of activities around the globe, but the lockdown on Wuhan, the epicenter of China’s coronavirus outbreak, lasted eleven weeks while in less affected regions it only lasted five weeks.
Recently corn futures were supported by news that china bought the most important amount of U.S. corn since 2013! China was expected to increase imports only in the second half of the year so this shows that the country is on the road to recovery. Cargill also reported operating its Chinese integrated poultry operation at 80% of capacity compared to 30-40% during the worst of the outbreak. China will also return in style buying oils and fats! Especially at current low prices.
Brent crude petroleum price (March 27th): $ 29.23/barrel
The contest between the Russians and the Saudis to see who can deliver the cheapest petroleum is another example of how the coronavirus could spark a global recession or depression. US shale oil production might have to stop if prices fall too far, hurting the US economy as well… and impacting the biodiesel industry’s viability.
1 EURO (March 26th) = USD 1.0981
There is always opportunity in times of crisis and it is our privilege to serve you, please know we are always here to help.
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Disclaimer
Unless otherwise mentioned the crude oil values quoted in these documents are prices landed in EU without import duties, handling, storage, financing, refining, packing, transport or any other cost related to bring the product to market. They are used as market trend illustration. Substitution of oils is possible but different oils have different fatty acid profiles and are not all interchangeable for all applications. One can make biodiesel from all oils and fats but one cannot make mayonnaise from coconut oil. This document is exclusively for you and does not carry any right of publication or disclosure. This document or any of its contents may not be distributed, reproduced, or used for any other purpose without the prior written consent of AVENO. The information reflects prevailing market conditions and our present judgement, which may be subject to change. It is based on public information and opinions which come from sources believed to be reliable; however, AVENO doesn’t guarantee the correctness or completeness. This document does not constitute an offer, invitation, or recommendation and may not be understood, as an advice. This document is one of a series of publications undertaken by AVENO and aims at informing broadly a targeted audience about the edible oils & fats market. AVENO’s goal is to keep this information timely and accurate however AVENO accepts no responsibility or liability whatsoever with regard to the given information.