Will the recovery continue or will there be a relapse?

Will the recovery continue or will there be a relapse?

Your Bi-weekly update on edible oils & fats by Aveno
July 31st, 2020

Covid-19 pandemic continues to dominate markets.

There is much uncertainty in all markets which makes them go both ways: up and down. Different indicators give a very mixed picture of the economic recovery around the globe. Chinese imports have been supportive to the prices of many commodities but how the Chinese, European and American economies will evolve in the coming months, is, at the moment, unpredictable. Some believe that demand will remain strong, led by robust Chinese purchases, as the pandemic fuels food supply chain security concerns around the globe and prompts stock buildup.

There have also been reports of disruptions on the supply side: like the lack of workers in the palm plantations of Malaysia, in South America infections in Argentinian ports and plants caused these facilities to shut down temporarily, not to mention the shutdown of slaughterhouses in EU and U.S. due to the virus.

Lately stock markets, mineral oil prices and the dollar slid on data showing the deep negative economic impact of the coronavirus as the world is preparing for a possible second wave.

Data Source: Thomson Reuters

Market evolution in the past 4 weeks 

Running month + 3 = OCT position, refined, in euro

 Sunflower seed oil increases about € 20/t, Palm kernel oil increases about € 8/t, Coconut oil decreases about € 36/t, Soybean oil not available, Palm oil increases about € 70/t, Rapeseed oil increases about € 30/t, EU average butter price is moving sideways at € 333/100 kg, Groundnut oil decreases about € 15/t

The world’s second-biggest palm oil producing country is losing production because of a labor shortage that is expected to worsen in the coming months due to the government’s covid-19 related decision to halt the recruitment of foreign workers. Malaysia needs the workers from Indonesia and Bangladesh whom account for 80% of its plantation workforce. Labor shortage could delay palm fruit harvesting and curb oil output, this ahead of the peak production season around September. 

Despite the tension between the U.S and China, the Chinese continue to buy soybeans. Good weather led to an improvement in soybean crop conditions in the U.S. In Europe the market of crude and refined soybean oil is sold out till the end of the year.

In Europe the price for rapeseed oil remains firm. The outlook for the current rapeseed harvest in Europe and the Ukraine has been further reduced, so that imports will be needed sooner. The biodiesel market saw increased demand over the last weeks, although biodiesel stocks remain very high and tank storage is still tight.

Prices for the coming crop of sunflower seeds have eased due to the expected record harvest in Russia and the Ukraine, but also in Romania. The market is awaiting the new crop in the course of October but the old crop remains tight and if China and India keep buying, this tightness might continue till the end of the year, although for new crop, prices are expected to ease, all going well.

Olive oil production is forecasted to be high again in the coming season and prices are expected to remain depressed/stable.

The slowing mineral oil demand recovery due to resurging coronavirus infections around the globe and the return of previously withheld production changed the market structure: the market is now back into “contango (or carry market)” meaning that the prices for delivery at later dates are higher than spot prices. Heavy stocks are weighing on the nearby market. This may be heralding a future petroleum oversupply… which can spill over to edible oils and fats prices.

It is AVENO’s privilege to serve you, please know we are always here to help.
Enjoy the holiday season and keep safe and healthy

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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.

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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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