A bullish cocktail

A bullish cocktail

Your Bi-weekly update on edible oils & fats by Aveno
May 14th, 2021.

Adverse weather could push prices even higher.

There’s been some rain across Europe, which should improve the grain and oilseed crops. The weather in U.S. improved for plantings but overall, it’s too cold for the time of year. There’s been some profit taking and changes in positions, in some markets which had a somewhat dampening effect, but a turnaround is not yet in sight.

Increased demand for all raw materials (lumber, copper, plastic, grain, oils and fats, etc.) from all corners of the world creates special market dynamics. One analyst said it looks like a global redistribution of things which could cause a new and higher "normal price level" for the longer term.

If you take the big Chinese demand of the past months and years. Add to it lower than average beginning stocks in producing countries. Then add climate uncertainties in EU, Canada, the U.S., and Russia and the catastrophic situation for Brazilian corn, and let speculators stir, then you get a very explosive cocktail.

Source: Foreign Agricultural Service/USDA Global Market Analysis

The edible oils and fats narrative remains that global demand is only increasing and that stocks fell to their lowest in the last 10 years, while in some countries demand for biodiesel is going up vigorously. We saw that high prices already caused demand loss in some food and energy markets, but apparently not enough.

In the past weeks grain and oilseed markets rallied on the back of deteriorating weather in producing countries and prices soared to records not seen in years.

This price action shows the market realizes that prices need to move higher to trigger more demand loss and the supply needs to improve dramatically in order to rebuild stocks. We need a perfect scenario for all crops to come in as planned and weather will become increasingly important. Not only must the 2021 harvests be good, we also need record 2022 harvests for global stocks to recover.



Source: Trading Economics

In Chicago soybean prices climbed to new highs and are now trading above $16/bushel, their highest level since September 2012. Oil prices followed.

There is favorable planting weather in the U.S., but it remains very dry in Brazil and it doesn’t look good for the coming period, hurting the corn crop. Therefore, corn prices exploded and due to the high corn prices, some farmers in the U.S. are choosing to sow corn instead of soy. This affects soy prices, where we have a very tight balance sheet (apart from food and feed much corn is used for production of ethanol to mix with gasoline).

Tight oilseed stocks, more interest for biofuels in the U.S. and Chinese soybean demand, boosted by strong demand from their livestock sector, kept oil prices high, despite fears over lower vegetable oil demand in India due to a surge in covid-19 cases.

Stocks in the U.S. to be at their lowest in the past seven years and there might be some exaggeration in the U.S. when domestic oil prices quoted about $450 above Argentinian oil. On the other hand, the U.S. is importing beans and oil from South America.

Palm oil

Source: Trading Economics

Palm oil futures benefit from strength in other agricultural commodities such as corn and soybeans, which are hovering at multi-year highs. And so Malaysian palm oil futures reached record highs and broke through RM4,500/mt for the first time! Gains in other oil prices and shortage of labor on plantations keep palm oil prices well supported, despite falling demand from India due to a surge in covid-19 cases.

Rapeseed oil

Australian seed imports should pull EU through AMJ but worries grow on deteriorating crop prospects in the EU and delayed plantings (hence harvest) in Canada which has the lowest stocks in eight years. Prices continue to be supported by the poor availability as old crop is drying up and new crop prices also continue to rise. Canada’s ending stocks may fall to 700,000 mt, 71% below the 2.4 Mmt in the 2019/20 season.

On Euronext rapeseed prices reached an all-time high of € 509/mt on 22nd April. Crude rapeseed oil hit a record high of € 1,200/mt a week later on 30th April and since then both are taking us higher and higher, ‘sailing away on the crest of a wave’.

With economies recovering from the pandemic and the new crop coming in July/Aug. rapeseed and rapeseed oil prices are expected to remain firm. More summer driving may also fuel European biodiesel demand.

Sunflower seed oil

The focus is fully on the coming harvest which is (delayed) still being planted. The USDA estimates lower productions than Oil World analysts who saw last two harvests at 55.7 and 50.3 Mmt of seed and they project a record of 57.3 Mmt for 2021/22. This is over 2 Mmt more than the USDA… and represents about 800.000 t of oil!

Anyhow global sunflower seed production is forecast between 55 and 57 Mmt due to record plantings. Most of the increase is in Ukraine, Russia and EU, where yields are expected higher than the previous crop which suffered from dry weather.

China and the U.S. will reduce production. Beginning stocks will be at the lowest in over 20 years due the production decline in 2020/21 and sustained demand for sunflower seed products.

Interesting turn of events: deferred crude sunflower oil (jan 22) is now only $60-$75/mt more expensive than nearby palm oil and about $275 under nearby rapeseed oil!

Source: Foreign Agricultural Service/USDA Global Market Analysis

Coconut oil

Market is tight following typhoons hitting the Philippines. But Philippines production of copra is forecast to increase to 2.6 Mmt in 2021/22, plus 8% as yields return to normal. Also, Indonesian copra production is expected to go up on projected higher yields. Sri Lanka decided to ban palm oil and favors the use of coconut oil through their import tax regime. This could be a swing of 100.000 mt oil.

USD and mineral oil.

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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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