Ambiguity and volatility
Your Bi-weekly update on edible oils & fats by AvenoJanuari 29th, 2021.
COVID-19 further plagues the already challenged market
Markets were in a corrective mood but recovered.
Market sentiment remains uncertain with global increases of Covid-19 cases, stricter measures and lockdowns, even in China. This caused concerns over demand and triggered some liquidation and profit-taking. The soybean market saw prices fall sharply and this pressured the rest of the oil market. But since there were fundamentally no changes, this bearish intermezzo was short lived and has already been overtaken by rising prices again.
There’s nothing really bearish in the market but COVID-19-fear rules and buyers are reluctant to take positions and are sidelining to see how the vaccine wave will affect lockdowns. It must be noted that not only central bank stimulations fueled all markets but also very much the expectations of a rapid positive outcome of vaccinations.
On China
China’s edible oils and fats consumption (40 M mt in 2020 with a production of 27.6 and imports of 13.3 M mt) is on an uptrend by increasing demand from food and the growing compound feed industry. As China is rebuilding its meat industry, they ‘re back on top as the 1st animal feed producer in the world (240 M mt/yr.).
Last year China slaughtered about 525 million pigs and today’s pig population of roughly 405 million is still growing after being devastated by African Swine Fever. The poultry sector also expanded. To feed these animals China buys grain and soybeans to crush into soybean meal and oil. The production of lard is now seen recovering but also, the production of soybean oil makes them less reliant on imports of e.g., palm olein. Albeit with imported soybeans, China is the biggest producer of soybean oil in the world!
On the other hand, there are reports about new outbreaks of swine fever and Covid-19. This could mean lower demand, but despite these reports, China continues to buy.
It was also reported that Chinese authorities discourage travel for the upcoming Chinese New Year celebrations due to the rise of Covid-19 cases. This Spring Festival or Lunar New Year, is the biggest festival in China, with a 7-day long holiday and a climax around the Lunar New Year's Eve on February 12th this year. This can still be a serious development. To watch!
Source: European Commission / IGC, Monthly average, close January 28th
Soybeans
With tightening supplies in North and South America, analysts are closely watching developments in South America. It has been very dry in southern Brazil, in parts of Argentina and Paraguay but weather in South America last week was a bit more favorable, which may still benefit the yields. But the world needs a record crop to sustain current demand. Especially when soy oil is called upon to fill the gap left behind by expensive sun oil.
Brazilian harvest started but is less than 2% complete with vessel line-ups already growing. Harvest delays are expected far into February, which forces buyers to switch back to U.S. soybeans. Chinese buying interest is still alive and due to South American supply issues, China returned to the U.S. buying several more cargoes. The Chinese New Year will slow buying activity.
In Europe soybean oil on nearby positions is sold out.
Palm oil
As markets recovered from last week’s sell-off, Asian oil markets all firmed. There still seems to be underlying demand for oil, despite increasing Covid-19 cases. Production in South East Asia is still threatened by a lack of labor availability and heavy rains. Stocks remain tight.
Rapeseed oil
Good crushing margins due to high rape meal prices and somewhat tempered demand from European biodiesel producers left abundant oil supplies on the market. Then China popped up as a buyer so this will keep the inverse rolling forward. Long term tight availability and relatively high demand keeps prices supported.
Sunflower seed oil
Supply situation is and remains tight, the expectations are that this will continue and, as a result, the market expects high prices till…., it gets better.
USD and mineral oil.
The Euro traded around $1.21 and the European Central Bank said they had the “necessary tools to act on Euro strength and that the common currency appreciation would take prominence for the central bank if it threatens the inflation outlook”. Meaning low to negative, interest rates.
Covid-19 is not helping to support petroleum prices. “If it doesn’t come from the demand side, it has to come from the supply side” they must have thought. So, OPEC+ decided to limit crude oil production in February and March. Jo Biden’s ban on drilling on federal land is also bullish petroleum!
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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.