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Riding the wave of optimism?

Riding the wave of optimism?

Your Bi-weekly update on edible oils & fats by Aveno
June 12th, 2020

Global oils & fats consumption drops for the first time in 60 years!


Source: European Commission / IGC, Monthly average close June 11th

How sustainable is the recent commodities rally?

Lifted by hopes of a quick economic recovery as more countries reopen their economies, many commodity prices recovered. Vegetable oil prices recovered on growing purchasing and restocking activity from importers such as China and India.

Earlier this year, the price drop of edible oils & fats was mainly caused by corona-related economic deterioration and the fall of diesel and biodiesel consumption. The competition between petroleum producers added to the price pressure.

Meanwhile the OECD published its findings on the state of the global economy, expected to shrink by 6% in 2020 (if a second wave of infections is avoided). Unemployment and declining purchasing power are main concerns and lost demand or lost consumption is lost forever.

In a recent publication “Oil World” analysts foresee a global consumption drop of the 17 major oils & fats for the first time in 60 years! For decades global oils & fats consumption increased, every year, driven by population and income growth. Since the 1990’s, biodiesel production also contributed. This season, consumption is expected to fall nearly two million tons to 234.85 m MT. This downward revision of demand will, generally speaking, probably offset any tightness in supply.

Nevertheless, when looking at “the charts” one might conclude that markets have bottomed out. Some might have, but is there enough momentum to continue the upward trend?

The S&P GSCI is a composite index that measures the performance of the commodity market. Last year, energy had the largest share: 62.63% of the index. Agriculture 15.41% (soybeans 3.14%). The Baltic Dry Index (BDI) is an index measuring changes in the global transportation cost for various dry commodities, such as coal, steel, grain & oilseeds, sugar, cement, etc. It is considered being a leading indicator of future economic growth:

GSCI and Baltic Dry index evolution over one year.

 

Source: Trading Economics

YTD Dutch price evolution of butter (week 24: €312 /100 kilo excl. VAT)



Source: NieuweOogst NL


MARKET SITUATION

Spanish OLIVE OIL prices dropped to a seven year low.

Desperate and frustrated farmers, via their associations, are preparing for demonstrations… High stocks from the past harvest (in public storage, at bottlers and at coops), good weather conditions and expectations of a next record harvest, weak domestic demand, less demand from food service and less purchasing power will all result in continuous price pressure. This season will, again, end with high carry-over stocks.

SOYBEANS

Chinese and Indian appetite for soybean products is back. However, China is buying beans in South America for their own crush as they need soybean meal to rebuild their pork-feed industry after problems with African Swine Fever last months. But if China produces more soy oil, the need for oil imports will drop. Soybean stocks in Brazil are dropping. Argentina faces logistic problems. The crop conditions in the U.S. look excellent. Soy oil remains cheapest liquid oil.

RAPESEED OIL markets supported by exports to China.

A fall in EU biodiesel demand was replaced by exports but also the anticipation of a tight seed supply next season supports prices. Diesel usage is starting to recover in N.W.-Europe and in their last crop forecast, COCERAL revised the next crop for EU-27+UK downwards from 17 to 16.5 million MT. Last year’s crop was 16.9 m MT.

The start of the Australian “winter cropping season 2020–21” was generally excellent with above average rainfall in most regions between February and April. Rainfall during May was mostly average and timely to facilitate planting and germination. Production is expected to increase 40% to 3.2 m MT, nearing the 10-year average of 3.3 m MT.

Canadian canola plantings are near complete, with some concerns over dryness which could affect yields. There are still exports of canola products to China but hopes of normalization in the relation faded when the Canadian Supreme Court ruled that Huawei’s CFO, under arrest in Canada, may be extradited to the U.S.

LINSEED OIL prices up!

Lower production of seed in North America and in the Former Soviet Union Republics (FSUR) supports market. The increased crushing in the FSUR leaves less seed for export to European crushers. On top of that came a pick-up in Chinese buying of seed and oil. Crude linseed oil of any origin is now quoted at $1010/MT ex-tank Rotterdam. Users of linseed oil are looking for cheaper alternatives, if technically possible.

FISH OIL production deteriorating due low catches in Peru.

Price cif NW EU for any origin crude fish oil is now $2250/MT compared to the average of $1566 during the period Oct 18-April 19. Fish oil used for fish feed can to a certain extent be replaced by much cheaper crude linseed oil and crude rapeseed oil.

More PEANUTS for peanut butter and salted peanuts than for crushing.
Helaas pindakaas.

Low production of groundnuts causes a tight supply of nuts and groundnut oil. This triggered an upward price trend. China, the biggest producer of groundnuts before Africa, India and the U.S., turned from being an exporter to being a net importer of NUTS. In the last decade demand for groundnuts for food use increased 5.5 million MT per year! This on a total global nut production of 31 m MT of which only 9.9 m MT is left for crushing to meal and 3.993.000 MT of groundnut oil. In May, Cif Rotterdam prices for crude groundnut oil increased to $1750, up from the average of $1498 during the Oct 19-April 20 period. As China is also buying oil, availability is becoming a concern.

COCONUT OIL strong with potential shortage.

After two good production years, copra production, thus also coconut oil production, is expected to decline sharply in 2020. In May prices were 25% higher than 12 months ago. However, the recent lockdown measures in producing area’s hindered logistics and this could have led to exaggerated fundamental tightness concerns.

Year on year in April, imports for all major commodities into the Philippines fell 65.3%, after a 26.2% fall in the previous month. Exports from the Philippines dropped 50.8%, after a 24.7% fall in March: coconut oil (-55.5%), bananas (-28.0%), gold (-9.5%) etc. But all this came about during a sharp decline in economic activity due to the pandemic. Nobody knows for sure if the copra is there or not, but the result could be that shipments of coconut oil to Europe fall short and cause supply problems.

PALM OIL hesitating and seeking direction.

On the supply side, the biggest producing countries Indonesia and Malaysia, both set their export tax for crude pam oil at ZERO for exports in June. Just as plantations are entering the high production cycle. One might wonder if they want to reduce stocks when there is momentum for restocking, just before production really picks up. Please read further below, in the section on petroleum, the comment on palm oil demand from biodiesel producers.


Brent crude petroleum price (June 11th): $ 38.33/barrel

Crude petroleum prices fell by nearly 10% on Thursday, June 11th due to demand destruction resulting from increasing new coronavirus cases around the world, a stock build up in the U.S. and oversupply concerns, plus a weak economic forecast from the FED.

In recent weeks, prices went up too fast too soon due to production cuts, while global demand may not return to pre-pandemic levels before next year. A typical case of a “supply- rather than demand-driven rally”. In this environment the competitiveness of palm oil ($585 cif Rdm) as feedstock for biodiesel, compared to gasoil, is fully undercut (if nothing makes biodiesel use compulsory).

Intercontinental Exchange (ICE) Gas Oil or diesel price evolution (June 11th $335.50/metric ton)


Source: Reuters




1 EURO (June 11th) = USD 1.13195

Market turns to (euro) safety following the gloomy economic outlook from the U.S. Federal Reserve which also flagged near zero interest rates until at least 2022.









AVENO is here for you. Thank you for being an AVENO customer. 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

Sign-up for Aveno's newsletters!



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: Riding the wave of optimism?
Riding the wave of optimism?
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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Aveno NV - The one stop shop for all your Oils and Fats
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