There is a lot we don’t know.

Market evolution in the past 2 weeks

January position, refined, in euro:

Palm oil yields will suffer, from reduced fertilizer application last year, probably up to 2021. And labor shortages remain a problem. But some analysts expect lower palm oil prices in the coming period as they expect rising stocks due to lower demand from China and India. Exports of Malaysian palm oil products for Aug. 1-25 dropped 16.4 percent. China seems to have shifted back to soy, rape and sun oil (note China mostly imports palm olein, not palm oil). The further Indonesian implementation of biodiesel plans remains a black box and they use about 7 million tons of palm for biodiesel in 2020. 

Soy market was calm with slight price fluctuations. The weather in the Midwest is closely monitored and weather models predict a slightly wetter situation in the coming weeks, following tropical storm Laura. China remains committed to its Phase 1 deal with the US and thus buying additional agricultural products. We still expect a bumper crop. Brazil is expanding the soybean production (not even counting the unofficial acreage). Restocking may or may not be over but in view of global record production some expect a burdensome carry-out at the end of season 20/21.

Expect tight non-gm-rapeseed supplies in EU as we just about finish the lowest harvest in 14 years. France announced earlier in August an additional 20% tax incentive to use rapeseed oil in biodiesel production. This is to get rid of high biodiesel stocks and to discourage palm oil usage. EU stays reliant on imports as we progress through the season. Australia looks great and timely rains could boost the crop to exceed 3.5 million tons at harvest during LH Oct-Nov-Dec. Canada’s harvest is starting, yields look good, but strong demand from EU and China, supports prices there as well. 

Red flag: if a second wave of covid results in lockdowns, biodiesel consumption will drop and it will be hard to sell the GM rapeseed oil from imported rapeseeds.

The prices of sunflower seed increased further due to limited availability and crop deterioration. Market sentiment changed completely from slightly bearish to bullish. Further direction will depend of what comes out of Argentina, what Russian export policies will be, what China and India will be buying, what the final global crop will be and eventually what soy, rape and palm prices will do. Looks a very complicated situation.

The euro remained supported by the EU relief package. But equity markets and the dollar rose after the Federal Reserve announced their plans for employment and their inflation policy.

Petroleum prices found support when Gulf Coast producers shut down 80% of the offshore crude oil production as hurricane Laura approached the region. The EIA also reported lower-than-expected US crude inventory. In countries where there are no biodiesel mandates, we see biodiesel production decrease. In New Zealand, dairy giant Fronterra dropped biodiesel use because it is no longer economically viable.