Prices flying higher on tight supply outlook


Prices flying higher on tight supply outlook

Your Bi-weekly update on edible oils & fats by Aveno
November 13th, 2020

Commodities and stock markets rebounded after and Jo Biden's election victory and Pfizer's encouraging vaccine news but analysts warn that euphoria and price increases may be premature as we still face a second corona wave in Europe and the U.S. Nevertheless, for most edible oils & fats the long-term fundamentals, the underlying factors which might influence the price, are pointing upwards as many supply problems materialize: tightness in sun, palm, soy, coconut, corn… against generally low stocks and relatively good demand from importing countries. 

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

Sunflower oil

Prices for crude sunflower oil in the Black Sea region crossed the $ 1000 marker for the first time in 7 years, about a 17% increase in the past two months. High prices will cause a change in demand flows from some importing countries towards cheaper alternatives such as soybean and palm oil.

Soybean oil

After the strong soybean price increase in October and some downward corrections, the fundamentals remain bullish. There is an increased risk that the South American crop, expected to come in, February onwards, will suffer from drought, and a weather risk premium is being built in. Brazil is currently importing soybeans for its own consumption! Argentinian stocks remain high but farmers are not motivated to sell. Meanwhile, some consumers are switching from expensive sunflower seed oil to soybean oil, which further increases global demand. European refineries are well sold and only small quantities remain available.

Rapeseed oil

Rape seed oil is supported by the general oil bullishness but decisive factors for the price development are:
- Biodiesel demand in EU is uncertain because of partial lockdowns and high biodiesel stocks.
- Consumers switching from sun to rapeseed oil, generating extra demand.
- Canadian canola production will fall a little behind last year's record and Australian crop is good; but what will China do regarding imports of seeds and oil?

Palm oil

Palm oil supply in Malaysia and Indonesia is falling short of expectations and the Asian vegetable oil markets saw significant gains: Malaysian palm oil prices touched a four-year high, despite somewhat lower than expected exports. The lower production and reduced ending stocks are also covid-19 (reduced labor availability) and weather related.

Olive oil

The still very affordable olive oil prices rose to a 20-month high as higher consumption and lower production outside Spain led to overall lower stocks. Also, higher sun oil prices gave some support.

Coconut oil

Beginning November, the Philippines were hit by Typhoon Goni and coconut oil prices soared to new highs. Other typhoons hit the region and it is too soon to assess the exact damage but production had already been lagging behind due to delayed effects of previous dry weather. Also, lockdowns had adverse effects on harvesting, transportation and processing. Coconut oil now makes a $300 premium over palm kernel oil. But as palm oil production is heading downwards, so is the production of palm kernel oil. Normally some CNO demand will switch to PKO.

Corn oil

In the U.S. the biodiesel demand for non-edible corn oil is bigger than the current supply. Production is recovering but due to the pandemic global corn processing (dry milling for ethanol biofuel + wet milling for edible starches and sweeteners) has been less than normal and it is yet unclear how the second wave will affect corn processing. The producers in Europe, South America and Asia are mostly sold out for the coming months. Corn oil is expensive and can partly be replaced by sun and soy oil…

USD and mineral oil.

We saw volatility in currency and petroleum markets. The euro trades close to an over two-months high of $1.19, but the ECB warned for increased downside risks to the euro-zone's economy, adding that the impact of the pandemic is likely to last well into 2021. Markets remain concerned about rising COVID-19 cases and fear a possible collapse of medical systems, after the number of infections in Italy rose above 1 million.

Source: Trading Economics

After trading above $45, brent price dropped on concerns about fuel demand as the number of global coronavirus victims increases. There were conflicting reports on inventory levels: one time unexpectedly low followed by a surprise rise in stocks…

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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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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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