After breaking several upside records in recent weeks, edible oils & fats prices, at last, are doing what they’re supposed to do: balance supply and demand. High prices rationed demand and concerns about inflation prompted actions from several countries.

The persisting bullish fundamentals seem to be discounted in current prices and we saw some price corrections and volatility as markets got torn between bullish and bearish news.

There’s been hope on the horizon, as the increasing rate of vaccination around the world would soon normalize life. But that imaginary line where earth seems to meet heaven retreated as we got closer to it. Now continued fears about economic recovery weigh on the market. Even petroleum prices dropped on the third wave of covid-19 restrictions despite a container ship blocking the Suez Canal.

We see signs of future growing stocks but any price drop, now, is likely to be moderate as long as depleted stocks are not restored and if the many current biodiesel mandates stay in place. Not to mention the problem of availability of some oils and fats.

We may have peaked or be near the peak, but this season, global consumption of edible oils & fats will still exceed production and cause very low carry-out stocks. Be confident but remember that Buffalo Bill never sold the hide of the buffalo before he shot it.

Oil World analysts forecast global biodiesel production to grow 2.2 Mmt this year after a drop of 700.000 t in 2020. Last Tuesday palm oil followed rising soybean oil futures in Chicago following Jo Biden’s plans to boost green fuel.

We saw heavily negative crush margins in China due to a lack of soybean meal demand. Rising feed costs are weighing on livestock farm margins. Therefore, feed mills are reformulating cheaper rations and looking to lower corn and soybean meal in animal feed. Expensive corn is replaced by wheat and as wheat contains more protein, they can use less soybean meal.

Following this news funds took profit and reduced their long position. But general expectations remain that Chinese feed production is to increase about 7.5% this year and for this they still need to import 100 Mmt of beans in 2021 at an affordable price.

Improved weather in South America following recent dryness in Argentina and excessive rains in Brazil kept a lid on prices and new-crop futures are limited by an expected increase in U.S. plantings.

There will be a fight for acreage between corn and soybeans and we’ll have to live through a weather market in the summer months and gains in soy oil and other edible oils are supported by the U.S.' recent biofuel push and there will be an historically tight carry out in the U.S. (10 days of crushing).

In Europe availability of refined soybean oil remains a challenge.

Low-income countries are reluctant buyers. Malaysian production is forecasted lower than past season but Indonesia is expected to compensate. Favorable weather, increased use of fertilizer, and good prices are to boost Indonesia’s palm oil production to record highs. This year might be a bit special as the ‘Covid-19 worker mobility restrictions’ are increasing labor availability on plantations by limiting the number of workers traveling home during Ramadan (this year April 12th – May 11th) and Eid Holiday.

Fundamentals remain unchanged with next season expected to be very tight. But this week in Paris rapeseed futures' net long dropped 4,321 to 7,590 lots as speculators added 2,139 shorts and cut 2,182 longs. The European Commission judged conditions of the winter crop to be good despite a cold winter, with yield projections currently above average. Although France reported some issues with the crop.

China is still very much interested in rapeseed oil and rape is cheap versus bean and sun oil. But EU is crushing record volumes with imported seed.

Market remained volatile and high prices scared away potential buyers. Prices corrected heavily. Availability remains a concern.

In normal times interest is the investor's inflationary expectation plus a return on capital. For a long time, there was no interest but that picture is changing. Inflation may vary by region depending on the relative part of goods in the consumer price index compared to services. Europe, Japan and the U.S. have relatively low inflation and in China it is even zero due to the fall in pork prices, which had sharply increased last year due to African swine fever

U.S. interest rates went higher in recent weeks and the 10-year interest rate on U.S. government bonds is 1.62% vs Germany’s minus 0.37%! Rate rises are caused by investors expecting consumer spending to rise sharply when global economies reopen. An additional consequence of the economic boost is rising inflation that we already see in commodities.

Emerging markets are raising interest rates to curb inflation: Russia (4.5%), Brazil (2.75%) and Turkey (19%) with 10-year bond yield of respectively 7.16, 9.27 and 17.43%.

There is much debate if inflation is structural or temporarily. Meanwhile money printing continues in the U.S. and EU…. And the Euro dropped to a 4-month low.

AVENO wishes all our readers a beautiful spring with hopefully more freedom of movement in the pipeline. Please reach out in case of any inquiries.