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Edible oil markets at the crossroads of many challenges.

Edible oil markets at the crossroads of many challenges.

Your Bi-weekly update on edible oils & fats by Aveno
June 26th, 2020

Source: Thomson Reuters/INSEAD


A pretty volatile macro-economic environment

The World Trade Association (WTO) reported that they estimate the global trade of goods to fall by “only 19%” in the second quarter, which is better than the worst-case scenario of 32% they had announced in April. But concerns remain for a second wave of infections that could slow the recovery in global trade. And fear of a second Covid-19 outbreak was also seen on the stock markets…

Furthermore, a survey conducted between May 29th and June 12th by Thomson Reuters/INSEAD showed that, in the second quarter, the business sentiment of Asian companies sank to an 11-year low, at 35 on their measurement scale (above 50 indicates a positive outlook). 

Before the pandemic, Chinese growth was already slowing, limiting job creation. Today, as unemployment rises, Beijing is trying to boost employment while factories are seeing their order book melt away. On top of that the Chinese Communist Party lost its so-called ‘market economy status’ in a dispute with the EU at the WTO. A result of this historic defeat is that the EU and U.S. will be able to apply high “anti-dumping” tariffs to Chinese goods, in order to protect their industries.

It is increasingly difficult to still believe in a V shape recovery as the Federal Reserve will hold its benchmark interest rate near zero through 2022, expressing it expects a long road to recovery.

Still oils & fats prices have not collapsed. Mostly because petroleum prices recovered and because of expectations of demand recovery as economies open up. And because of expectations of consumption to rebound in the next season (2020/21). But the extent of the demand recovery remains uncertain and it might take a long while before we are back to pre-corona consumption levels. Biodiesel policies in several regions will be a key swing factor. For next season market analysts expect a moderate price increase as demand picks up.

Source: European Commission / IGC, Monthly average close June 25th 

The soybean complex

China remains the largest import market for soybean products: 60 percent of total world import demand. The trade war shifted some exports from the U.S. to other regions and changed trade flows but that doesn’t change global demand.

President Trump put trade tensions back in the spotlight by threatening to cut ties with China and a White House advisor said the trade deal with China was over. However, this was soon contradicted by different sources. But early optimism of potential sales by the U.S. to China did not materialize and pushed soybeans prices down. In the US, sowing is near complete and good Midwest weather could continue to weigh on forward markets. Otherwise not much exciting happened on the soy market and prices remained stable. 

In Argentina, harvest is done, but farmers aren’t selling. Also record low water levels on the Parana River, key for transportation to main export channels, are crippling exports. This comes from dryness in Brazil which entered its dry season…


Palm

Prices remained supported by strong export demand and higher petroleum prices due to production cuts by Opec and hopes of an economic recovery. But production and stocks are expected to increase in the coming high production season. Some market watchers are even expecting big stocks increases by the end of the year, due to good production and demand destruction coming from a worldwide recession, which could weigh on prices in the fourth quarter.

Data Source: Thomson Reuters


Rapeseed

Old crop prices for rapeseed remain firm because supply remains tight. The harvest expectation of next EU rapeseed crop remains low although growing conditions are currently good. Harvesting in Ukraine and the Black Sea region is delayed by rain. Prices are forecasted to remain very strong.


Increased: Brent crude petroleum price on June 26th: $ 41.51/barrel 

Intercontinental Exchange (ICE) Gas Oil price on June 25th: $344.50/metric ton
Source: Trading Economics

As driving picks up when economies reopen, market players focus on recovery of the global economy forgetting that mostly production cuts supported mineral oil prices; we are far below pre-pandemic consumption levels. 


Decreased:  1 EURO (June 25th) = USD 1.1200

Source: ECB

The €/$ exchange rate fluctuated strongly on growing concerns over the length of the economic recovery in the eurozone and over a second wave of coronavirus infections. 










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It is our privilege to serve you, and please know we are always here to help.







Don't forget to check out our other bi-weekly updates!

There is some complexity to the business we daily operate in. To help understand the business of being an edible oil and fat producer we've launched this bi-weekly newsletter.

Every two weeks we will share an update about edible oils and fats. You can find all previous updates on: https://www.aveno.be/search/label/newsletter

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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.




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Aveno NV - The one stop shop for all your Oils and Fats: Edible oil markets at the crossroads of many challenges.
Edible oil markets at the crossroads of many challenges.
There is some complexity to the business we daily operate in. To help understand the business of being an edible oil and fat producer we've launched a primary newsletter. Every two weeks we will share a market-update about edible oils and fats and every month we will share a bulletin.
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