Bolsonaro, soybeans & AVENO
Your Bi-weekly update on edible oils & fats by Aveno
March 12th, 2021.
Who would ever have thought that the Brazilian president would pop up in dr. Aveno’s bi-weekly market letter?
The petroleum industry and the production of biofuels, such as ethanol and biodiesel strongly interact, especially there where mandates are in place. Brazil’s mandate for biodiesel is 13% admixture. Brazilian transport uses about 35 Mmt of gasoil/year and in 2020 Brazil produced 5.6 Mmt biodiesel mainly soybean oil based.
End February, Brazil's president showed he wants to influence domestic fuel prices, by backing a new CEO, J. Silva e Luna, for Petrobras. Bolsonaro pointed out that fuel prices had already been raised four times this year and that the CEO, R. Branco, did nothing about it. Every day truckers pay more reals per liter for imported petroleum products, also due to an unfavorable exchange rate.
The transport sector has put great pressure on Bolsonaro and threatened with strikes to lower the price of gasoil. Strikes that can be missed with a crop in the field that is already delayed. The government has now reduced the mandatory blending given the high price of soybean oil, relieving some tension in Brazil.
A perfect example of what high commodities prices can lead to and what government policies can do. Other countries with biodiesel mandates like Malaysia and Indonesia may all have to address the problem of edible oils being much more expensive than gasoil, and review mandates. Hopefully relaxing food oil prices for Aveno.
MARKETS
Soybeans
A global shortage of all oilseeds, used to make oil for from cooking to biodiesel, seems to worsen with hot and dry conditions in Argentina and flooded fields in Brazil causing harvest delays. Mato Grosso declared a state of emergency with 3mln ha under water. All this pushed soybean prices to their highest in almost seven years, and soybean oil to its highest since 2012.
Source: Trading Economics
The drought in the Black Sea region reduced there the last soybean crop and stocks dwindled so now Brazil is set to export 51,600 mt of soybeans to Ukraine later this month.
Surprisingly the USDA’s (WASDE) report, this week, showed a stable global supply of soybeans and it even raised the forecast of the Brazilian crop to 134 Mmt! While lowering the Argentinian crop to 47.5 and keeping China’s demand unchanged at 100 Mmt. But markets struggle with this. China, the world’s biggest pork meat producer and consumer, remained quiet with no new soybean purchases reported. They continue rebuilding their pig population despite some new outbreaks of African swine fever.
In EU, on some positions, we saw soybean oil making a premium over rapeseed oil. Corrections cannot be excluded but, until something new pops up, fundamentals remain bullish.
Palm oil
On March 8th the palm oil price in Malaysia reached its highest level in 10 years and after passing the psychological level of RM4,000 /mt it seems to be staying there. The all-time high of 4298 Ringgit was reached 13 years ago in march 2008!
Source: Trading Economics
Production continues to disappoint and palm is getting support from the more expensive soybean, sunflower, rapeseed and other oils. High prices may cut some demand but low stocks and lack of alternatives will support prices. Stocks of crude oil in EU are low and refining capacity is also well sold.
Rapeseed oil
Rapeseed futures in Paris broke records on dwindling stocks and the International Grains Council forecasts global stocks of rapeseed to drop to an eight-year low by the end of this season.
Seed prices are high but so are oil prices which gives crushers a good margin and Chinese demand contributed to a ramp-up in EU rapeseed crush despite lower seasonal oil demand from food and slower biodiesel demand in EU. There are concerns that when covid-19 restrictions ease, oil demand from biodiesel and catering has the potential to increase substantially. In EU biodiesel is a key driver to rapeseed oil prices as around 60% of rapeseed oil is used for biodiesel.
Oil World confirmed the soaring prices of rapeseed in EU due to a sharp fall in supplies which triggers big imports in the first half of 2021. Last month the German ‘Union for the Promotion of Oil and Protein Plants’ published an interesting graph showing a tight carry out of not even 4% of total consumption of rapeseed! EU produces only 76% of its needs and Canadian, Australian and Russian/Ukraine origins are important for us. But this puts our rapeseed oil producers in a global competition for rapeseed procurement, to produce the oil for the sauces consumed at our coming BBQ!
The USDA foresees a bumper Australian crop and raised its harvest expectations with 400.000 tons to a record 4 Mmt. EU’s production is seen at 17.1 Mmt and imports at 6.3 Mmt. Aussie seeds (2 Mmt?) are most welcome in the coming months, when supplies from Canada and Ukraine dry up.
Rapeseed prices are not expected to drop dramatically as supply issues spill over into next season. There is still upward price potential and the next harvest is still far away.
Sunflower seed oil explosives
European sunflower oil prices also reached historical highs. China kept buying and FOB export prices of crude oil soared to near $1800/t. Month/month the market increased 32% and year/year the market soared more than 150%!
For the first time ever Romania, one of EU’s key sunflower seed producers will import Argentinian seeds! A ship is chartered to load 35 000 MT mid-March of a total contracted 95.000 mt. And the Argentinian harvest is far from spectacular.
USD and mineral oil.
Please reach out to your regular AVENO contact in case of any further inquiries.
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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.