Despite COVID-19-related losses in GDP (gross domestic product) and lower energy prices, many Agri-commodities rallied. This was driven by monetary stimulus bringing speculators to Agri-markets looking for alternative investments and a hedge against inflation. But also, weather impacts (La Nina/dryness) around the globe and strong rebounding demand, particularly from China, supported prices. Vegetable oils firmed with palm leading the way as we experience simultaneous tightness in the 4 major vegetable oils.

The Spanish harvest started but rains slowed it down and these showers can have a negative impact on quality. Analysts expect an average olive oil production of about 1.5-1.6 Mmt. Prices are currently much higher than last campaign, mainly due to the fact that Tunisian oil production is expected to decrease sharply after last year's record harvest, and the Italian harvest will also be below average this year. Significant price corrections are not expected. 

Will be tight until next crop coming October. Meanwhile some relief may come from Argentina where dry weather impacted plantings and production estimates are now being lowered. Russia imposed an export tax to curb domestic food inflation (30% on exports, between 9th January and 30th June) and exports of sun oil from Ukraine to China continued. Dwindling European demand may later lead to price corrections as buyers shift away from expensive sunflower oil. ‘Oil World’ thinks demand in EU could be reduced by as much as 700.000 mt! 

Analysts report China’s pig herd recovered to 90% of its prior to the African Swine Fever pandemic level and it’s expected to return to normal in early 2021. This means “more soybean meal demand”. 

Soybean oil prices find support from, weather related, steadily decreasing harvest estimates in South America and fast-decreasing stocks in the U.S. Not to forget that a very big chunk of the coming Brazilian crop has already been sold. 

Fundamentals remain supportive with mixed ideas on demand developments for food and fuel/biodiesel, following Covid-19 restrictions in EU. There has been some switching out of sun to rape and China has been shipping out crude and refined rapeseed oil. Also, China and Australia are in “political-trade dispute” so they may well boycott Australian rapeseed products, leaving more for export to EU. Firm soybean, palm and sunflower oil support the price. 

Further Chinese imports of groundnut products contributed to a tighter supply despite a declining consumption in the rest of the world. This year EU imports are down from about 70.000 mt to 60.000 mt of groundnut oil! Very tight market. 

Although not historically cheap, palm is still the cheapest oil. We are entering the low production months, bottoming out in February, to then slowly pick up again. Stocks remain at historic low levels with continuing production concerns. 

Indonesia increased its variable export levy ($213 vs 58) for palm oil to help finance its B30 biodiesel scheme. The difference between palm oil and gasoil prices, the so called POGO-spread is historically high. Fulfillment of the B30 program results in less palm oil exports to a world with insufficient supplies of vegetable oil. 

The Euro continues to appreciate at levels not seen since April 2018. Support comes from positive vaccine news, hopes for a Brexit-deal, demand for riskier currencies and the prospect of additional stimulus in the US. The trend is up and some analysts believe the euro will trade at $1.25 in the months ahead. But as always: “the future ‘s not ours to see” and materializing fundamental economics will dictate currency rates. 

Brent is trading above $51/barrel, the highest since early March, on same hopes as above… But demand and price are still far below pre-COVID-19 levels. Reports says Asia was ahead of the curve in recovering from the virus and “we see record-breaking refining demand in China and India”. This raises expectations of a rapid increase in crude oil demand, as vaccination programs roll out in Western economies. We’ll see, when, that happens and if OPEC can manage or balance production.