Optimists neglect sanitary reality.

Optimists neglect sanitary reality.

Your Bi-weekly update on edible oils & fats by Aveno
Januari 15th, 2021.

Is optimism a speculator’s moral duty?

Recently many reports talked about rising commodity prices, the most bullish markets in a decade, the super-cycle etc. Indeed, the Asian powerhouses are on a buying spree but also fear of inflation drives investors to find alternatives for their money. Vaccines, stimulus for the economies, hopes for demand recovery, La Nina-related droughts in Latin America, all prompted speculators to scramble to commodities, boosting prices to the highest in years. 

In the 2019/20 season the global consumption of edible oils and fats slightly exceeded production. The lower COVID-19-related-demand from out of home eating, biodiesel and other market segments was offset by a production decline of most oils. 

Today palm oil prices are at the highest in 8 years, while stocks are at their lowest since 2007 and likely to drop further as we advance in the seasonally lowest production months. The soybean carry out is at the lowest in years. China kept buying groundnut and linseed products and rapeseed and sunflower seed oil. The olive oil harvest was about 80% complete when a cold spell and snow storms hit central Spain and there’s a major production setback in Tunisia. Overall, everything feels tight. 

But the past days, prices eased on concerns about China reporting a 10-month high in Covid-19 cases as infections in the Heilongjiang province tripled. This generates large scale lockdowns and questions on the upcoming Lunar New Year celebrations, when millions travel home to spend time with family. Meanwhile France, the UK and the Netherlands took extra measures to combat the spread of the virus. All this weighs on the market. But just imagine what can happen when this is gone. 

Source: European Commission / IGC, Monthly average, close January 14th 

Consolidation, corrections or is the sky the limit?

My grandpa always said that the best cure for high prices is high prices and high prices always bring goods to the market. Further, some swing factors influencing supply and demand will be: 
  • Weather and crop development firstly in South America but also elsewhere; think winter kill for rape.
  • Possible stock rebuilding in the second half of the year.
  • Containment of the pandemic and return to normal life.
  • Effects of high prices on consumption around the world.
  • Fulfillment of existing biodiesel mandates.

The “Jo Biden Plan for a Clean Energy Revolution and Environmental Justice” will prompt his administration to address carbon emissions from transport in the U.S., and biofuels are first in line for the existing low-carbon fuel programs. In Europe, rising greenhouse gas reduction targets may boost biodiesel demand. But Indonesia and Malaysia may want to reduce their biodiesel ambitions at the current POGO spread (diff. Palm Oil-Gas Oil price). 

India and Middle East countries substitute expensive sunflower seed oil by cheaper alternatives. Theoretically, in tight markets with continuously fueled demand, when all substitutions are exhausted, all prices tend to converge, at the level of the most expensive product. That price will then rise till demand disintegrates. We’ll see, said the blind man, we live in interesting times. 

USD and mineral oil.

The USD was dropping against a broad basket of currencies. It looked like nobody wanted a safe haven anymore but the sentiment reversed somewhat due to rising concerns over the global increase of Covid-19 cases. Looking at inflation and interest rates some claim that U.S. 10-year real Treasury yields are rising faster than in EU. So, the dollar recovered some lost ground. This can yoyo up and down.

Petroleum rebounded strongly from its pandemic crash and rallied to new highs after Saudi Arabia surprised everybody by unilaterally cutting production. Petroleum has much to gain from reopening economies, but then Brent crude fell below $56, on worries about fuel demand due to Covid-19. Makes one think it’s too soon for yippee-ki-yay! 

Keep smiling, keep shining, knowing you can always count on AVENO 

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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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Aveno NV - The one stop shop for all your Oils and Fats: Optimists neglect sanitary reality.
Optimists neglect sanitary reality.
Aveno's BiWeekly market update on edible oils and fats
Aveno NV - The one stop shop for all your Oils and Fats
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