Floods and droughts making all prices rise: from grain to edible oils…
Your Bi-weekly update on edible oils & fats by Aveno
October 30th, 2020
Food inflation
Primary market themes remain: persistent Chinese buying, the pandemic and ongoing concerns about dry planting conditions around the black Sea area and in South America and about heavy rains in South East Asia. Fundamentals changed dramatically since the summer and weather is now of utmost concern. Extreme and unpredictable weather across the globe, combined with supply disruptions and stockpiling pushed up prices of many agricultural-commodities.
Brazil, Russia and parts of Europe and the U.S. are facing extremely dry weather, while in the far east Malaysia, Indonesia, Vietnam and others saw crops destroyed by storms and floods. At the same time, China keeps replenishing reserves and covering the feed demand for the growing hog population. But also, many other countries have been stockpiling food to prevent supply disruptions. Many countries/consumers now face rising food prices in a doubtful economic environment.
Source: European Commission / IGC, Monthly average, close October 28th
In Europe lockdowns and restrictive measures overshadow near to midterm (food, feed, biodiesel) demand as it remains uncertain how these measures will impact demand. Globally vegetable oils remain firm on a downward revision of productions, ongoing strong demand, weather and tighter supply concerns. But the rise in covid-19 cases also jeopardizes future demand, although this can work both ways because of lockdown fears, a part of the market is short covered…
Soybean oil
For the soybean supply in the coming months the market will have to rely on the U.S. The harvest in is nearly done but demand is still high and so prices on nearby stay high. In South America sowings for the next crop have been delayed due to drought, and rumors go that in southern Brazil parts need to be re-sown. Some rainfall improved conditions but the world needs an early and good Brazilian crop to satisfy demand. Even orange producers are severally hit by the dry conditions.Rapeseed
EU markets eased on uncertainties of new lockdowns announced for Germany and France. European situation remains tight but biodiesel demand is slow. In Australia, harvest is underway and the crop is estimated at a good 3.4 Mmt.Sunflower seeds
High sun oil prices are rationing demand and supporting other oils (switches to e.g. rape and less demand from biodiesel).Palm oil
Low stocks are supportive to prices; rainfall hampered harvesting and covid-19 restrictions weigh on labor force. Overall supply is revised downwards. Rains can also cause oil quality problems but rains should be beneficial for the production in the coming months. But if demand persists it will not weigh much on prices.
Market evolution in the past 2 weeks
(January position, refined, in euro)
USD and mineral oil.
The euro was already under pressure due to worries about covid-19 measures weighing on the economic recovery, and it weakened further after the ECB announced that the new measures had led to a "clear deterioration" of the euro-zone’s economic outlook and expectations of a weak fourth quarter with a "very negative" November.
Petroleum lost ground on worries about less fuel demand from economies in lockdown or due to other pandemic related restrictions, but also following reports about larger-than-expected crude oil stocks in the U.S.
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There is some complexity to the business we operate in. To help understand the business and to help navigate in a challenging environment, Aveno has launched a series of publications. The bi-weekly market update informs our business relations about the changes in the edible oils and fats environment. The bi-monthly broadly informs its targeted audience about the edible oils & fats market.
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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.