An alarming rise in food prices
Your Bi-weekly update on edible oils & fats by Aveno
February 12th, 2021.
"Prices will continue to rise and uncertainty is mounting"
"(food)Prices will continue to rise and uncertainty is mounting," sa id an FAO economist in a recent interview, warning that “stocks are dwindling rapidly”.
Besides disruptions caused by the pandemic, export curbs in places like Argentina and Russia and the weather, Chinese demand for food crops is another reason behind this uptrend. The Chinese consumption of animal feed is much higher than ever was expected and global stocks of grain are at their lowest in seven years.
Food prices increased during 8 months, with an intensification last January. The food price index from the Food and Agriculture Organization of the United Nations rose dramatically 24.5% from 91.0 in May to 113.3 in January!
Source: FAO, release date: 04/02/2021
Chinese animal feed demand is expected to stay strong, but disease outbreaks (porcine epidemic diarrhoea (PED) and swine flu were reported) could hamper pig herd growth. And while China recovered from the coronavirus faster than other countries, new outbreaks also appeared. Things can change quickly.
And although the prices of many commodities are high the situation could be worse for us if there was no coronavirus. Production of major oils and fats was hit in the past year leaving everything looking extremely tight, so there is still much upward potential once consumption normalizes.
MARKETS
There is now hardly activity in China as most is closed for the Lunar New Year Celebrations which continue with the Golden Week till the 17th. Valentine is coming up and in Chicago the Funds liquidated some of their soybean long ahead of the long weekend with Presidents Day next Monday. This federal holiday honours all the presidents who served in the United States
Source: European Commission / IGC, Monthly average, close February 11th
Soybeans
The USDA’s “World Agricultural Supply and Demand Estimate (WASDE)” reported the 2020/21 marketing year world ending stocks somewhat lower at 83.4 Mmt vs 84.31 Mmt in the previous report, in line with trade expectations. But the estimated U.S. ending stocks of 120 million bushels (3.26 Mmt) is the lowest in 7 years! Strong demand is depleting stocks and the world is now reliant on South America for the next 7 months. But Brazil is running late and it appears to be the slowest harvest in 10 years and vessel line-ups for new crop beans continue to grow.
Palm oil
Markets face presently weak demand and very strong fundamentals (low production and historic low stocks). India lowered its import duties for palm oil by 50% because of shortages of sunflower seed oil and soybean oil and to keep domestic food prices under control.
Rapeseed oil
Fundamentally, the S&D is tight for the remainder of the season but oil is still competitive and whoever can switch from sun to rape will do so. China has also been placing new big orders for European rape oil. Winter biodiesel needs rape oil for viscosity reasons and there is much buying interest for new crop which resulted in ASO building an inverse to NDJ. This clearly reflects market fears for a tight and difficult transition from old to new crop. Watch MJJ!
Sunflower seed oil
China and India have still been buying sun oil and the seed situation stays unchanged tight. This will remain till new crop and only if the weather cooperates, we may see some relief then. Hopefully we’ll get more certainty on the new crop in July. Argentina is of little help.
USD and mineral oil.
The € fluctuated rangebound and settled not far from this year’s high. Support comes from optimism about a fast vaccine-led European economic recovery.
OPEC lowered production and some think that higher prices could tempt producers to start pumping more oil as vaccination efforts and government spending fuel optimism for a global economic recovery.
It’s AVENO’s privilege to do business with you.
Enjoy the cold and happy Valentine celebrations!
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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.