Bulls and Bears vs the Covid-Monster!

The pandemic has been overshadowing a lot of market factors, introducing unusual large amounts of uncertainty. We ended up in uncharted territory and on our path, we ran into new logistical, political, economic and other challenges. 

Although threatened by a second wave of infections, China seems to be up and running but their customers in some 182 countries are in lockdown and not in a buying mood.

In Malaysia Covid-19 is disturbing palm plantations’ work, making the Bulls anticipate lower output and higher prices but Indian demand dropped dramatically making the Bears anticipate lower prices. 

Global biodiesel production is now forecasted to drop nearly 10% due to a decline in fuel use (movement restrictions) and low mineral oil prices; bringing supply and demand of edible oils and fats more in balance.

Sun oil prices gained about $50 on the back of sun seed producing countries, Russia, Kazakhstan, Armenia, Belarus, restricting exports of sunflower seeds. Some crushers are running short of seeds and cannot produce the oil they had previously sold.

Panic buying? Also, farmers have been stockpiling. Animal feed demand went up, driving up feed ingredient prices (like rapeseed and soybean meal) whilst milk and meat prices are dropping fast following lower demand from foodservice and export markets.

Difficult to be bullish or bearish. The question remains: what will happen after customers in all markets stop stockpiling and when will things return to normal?

Data Source: Thomson Reuters

World food prices dropped in March, mainly as a result of falling demand due to the pandemic and the fall in global mineral oil prices. The latter is mainly due to the expectation that the economy will slow down as governments introduce restrictions to deal with the health crisis.

The FAO Food Price Index, which tracks monthly changes in international prices of commonly traded food products (sugar, grains, meat, rice, dairy, oils and fats..), averaged 172.2 points in March, down 4.3 percent from February. This is largely driven by demand factors (impacted by the worsening economic outlook), not supply.

The FAO vegetable oil price index fell by 12 percent in a month, mainly due to falling palm oil prices linked to the fall in mineral oil prices and the growing uncertainty about the impact of the pandemic on global vegetable oil demand. Soy and rapeseed oil followed the same trend.

A recent Rabobank study says that, as a result of the pandemic, European dairy prices may drop up to more than thirty percent in the next six months. With a slow recovery starting in the fourth quarter. The study predicts that China will import about 28 percent less milk powders in 2020. And due to low mineral oil prices, there is also less purchasing power in the Middle East and North Africa. In the last four weeks the average EU-27 butter price dropped 5.4% to € 329/100 kg on April 8th.

Evolution of Belgian butter prices June 4th 2018 (€ 608.03) – march 30th 2020 (€ 306.12)

We’ve been there before, but long ago. The corona pandemic wiped out 1/3 of world demand for mineral oil: 30 to 35 million barrels per day, depending on the source. Cutting production by 10 million barrels per day will not really support prices but to quote the Executive Director Dr Fatih Birol of the International Energy Agency: “it’s a good start”. Meanwhile land tanks and seagoing oil carriers are getting full everywhere. Something will have to break.

Source: Trading Economics

Source: ECB

In these challenging times, take good care of yourself and one another and enjoy your Easter break!