Hot soup and no buffers for setbacks
Your Bi-weekly update on edible oils & fats by Aveno
April 9th, 2021.
Will the soup be eaten as hot as it is served or is all bullish news already discounted?
Markets always look ahead and anticipate the carry-out or ending stocks of the current and next marketing seasons. The carry-out stocks being the result of supply and demand. Markets already shifted their focus to the next coming harvests.
This season’s carry out stocks are all very low, so at the same time many realize there is no room for disappointment or setbacks like bad weather or policy changes, hence the cautiousness and fear for a lot of volatility until all productions materialize as expected.
Before Easter we saw some downward corrections but when the USDA came out with their first “planting intentions report” for the next crops in the U.S., the Chicago Board of Trade went on fire and a few sessions traded limit-up. The survey showed a less-than-expected acreage for soybeans but 87.6 million acres is still 5% more than last year. Prices rose, then dropped. Hunters of bullish news will follow up on “planting progress reports” ….
Bloomberg reporting on traders “gearing up to profit from a boom in the American renewable diesel industry” also supported prices. And all this North American bullishness spilled over to palm and other oils.
Markets are looking at Australian rapeseed plantings, soybean plantings in the U.S., sun seed plantings, production developments in palm oil producing countries, weather across the globe and until the new harvests kick in and crops are in storage it can still get very exciting.
MARKETS
Data source: Thomson Reuters
Soybeans
Bearish is the good supply from south America and bullish is the supply situation in the U.S. (low carry-out, higher biodiesel demand). The Brazilian crop is now estimated at a record between 134 Mmt (USDA) and 137.1 Mmt (Agroconsult) and over 80% complete.
South American weather is dry with scattered showers around Argentina. But soybeans reached maturity and growers now only need good harvesting weather to get the crop in storage.
Looking ahead, Brazil is expected to expand soybean plantings to 40 million hectares for next year’s crop, up from about 38.5 Mha planted last year. The next crop is forecasted at 141 Mmt! This is based on current market conditions and trends (strong demand and high prices), conditions which are expected to persist.
Source: USDA
But the focus will now turn on plantings in the U.S. just starting after winter. Weather so far has been supportive for farmers to get out into the fields but a cold snap (forecasted for next week) may still hamper planting progress.
China remains quiet and continuing rumors about rising African Swine Fever cases, and lower soybean crush margins are possibly reducing interest. Where there is smoke there is fire and less crush means less oil production in China which is bearish for beans but bullish for oil.
Palm oil
Source: Malaysian Palm Oil Board (MPOB)
With Malaysian stocks end-March at around 1.3 Mmt, the market isn’t expecting a drastic stock rise in April which will keep prices supported. Current tightness in competing oils is also limiting the downside. The production forecast this season is lowered to 18.8 Mmt. But for 2020/21 palm oil production in Indonesia is raised to 46.5 Mmt. In Rotterdam stocks are low and are expected to remain low in the coming 2-3 months.
Rapeseed oil
According to the International Grains Council (IGC), the world's four largest rapeseed producers, Canada, EU, China and India, will harvest more rapeseed in the 2021/22 crop year than in the previous year. Global rapeseed production is expected to rise from 70.4 Mmt in 2020/21 to 72.8 Mmt in 2021/22 with a consumption expected to remain more or less unchanged at 72.9 Mmt.
‘Agriculture and Agri-Food Canada’ estimated a 4% increase in plantings to 21.6 million acres, the most in 3 years. Due to rainfall in Canada previous to the start of the planting season prairie moisture could still be a limiting factor this spring but there is still time.
The Crop in EU-27 is seen at 17.3 Mmt in the 2021/22 crop year. The effects of the recent cold on flowering rapeseed will soon appear and farmers hope there is not too much damage. Noteworthy is that Norway is increasing its rapeseed oil imports to produce environmentally friendly “marine biofuels” for their fleet! And of course, oil purchases from China kept EU exports high.
Also, in Australia, rape seed production is expected to remain strong in marketing year 2021/22 (sowing AM, harvest ND) and forecasted at 3.9 Mmt, just 100,000 mt short of the bumper crop in 2020/21. High prices and good moisture are to boost the planted area.
Shift in rapeseed Exports from the EU to China
Source: Australian Bureau of Statistics
One area of concern for Europe is the shift of Australian exports to China. EU is depended on imports of rapeseed but there are other countries competing for this seed supply. And when two dogs fight for a bone, another dog can get away with it.
Fundamentals remain unchanged with a negative carry out for either seed or oil and so availability of seed and oil in EU is limited until the start of the new EU crop (Aug).
Sunflower seed oil
Much talk about a Russian Ministry of Economy proposal to impose a restrictive export tax on sunflower seeds from 1st July and a formula-based export tax on sunflower oil starting 1st September. Russia already imposed several export taxes for grain, sunflower seeds and other measures since, in its fight to halt rising food inflation amid the covid-19 pandemic.
Global sunflower seed production is optimistically projected between 55.5 and 56 Mmt and some dare say that with good weather we could see an even higher production. Prices could correct considerably around June/July when there is more clarity on the planted areas and yields. But until the crop comes in, cover your needs in time before a shortage takes you by surprise.
USD and mineral oil.
The unexpected appreciation of the dollar against the euro adds to the prices having to be paid in euro.
Petroleum remains far below the 14-month high of $71+ mid-March and producers agreed to increase production starting in May while the market swallows the negative impact on global demand coming from newly extended covid-19 restrictions in EU, slow vaccine rollouts and rising number of cases in India and Brazil. Some believe that Iran may see some sanctions lifted and add to global petroleum supplies. All this in contrast with cheers on the growth of the global economy and scarcity plus high prices of many commodities and services.
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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.