Oils & Fats, Economics and Politics.

The World Trade Organization recently pointed to the stagnation of global trade. The fall of the Capsize freight index to its lowest since 2008 and lower container freight prices illustrate shrinking global maritime trade. We have an EU energy crisis, a faltering Chinese economy in lockdown and a strong dollar combined with ongoing interest rate hikes. All signs that the world may be moving into a recession and many commodities eased from the bearish sentiment the economic outlook is spreading.

Petroleum is one of many commodities that loses buyers on a sad economic outlook and edible oils prices were pressured by the many bearish factors gaining more weight. The good outlook for rape and sunflower seed production on top of palm oil weakness kept a lid on prices. The Argentinian government came up with a new policy, the “soybean dollar scheme” which seems to be working, to encourage farmers to export more soybeans! And the Indonesian government actively continues to promote the export of palm oil to get rid of burdensome inventory. While Ukraine has been above expectations in finding alternative export routes (trucks, barges) and after the export deal with Russia many seagoing vessels loaded in UA ports.

A potentially deep economic recession and ample supplies remain a limiting factor for price increases. But as always there are two sides to every story.

Our Russian friend Gas Putin wants to revisit the deal on the Ukraine export corridor because “exports are going to the "West" and not to developing countries” and thus Putin wants to limit the deal to a number of selected countries. This created nervousness and supported prices a bit but so far everything goes as planned.

In the U.S. soybean oil has found support from the silently growing production of HVO (hydro treated vegetable oils as biofuel) despite the lower consumption of classic biodiesel (FAME or SME soy methyl esters). In Argentina the biodiesel admixture is back at 12.5% while Brazil and Indonesia are increasing their biodiesel usage too.

In EU oilseed prices came down but the very high energy prices lead to higher processing costs for crushers and refiners keeping prices of refined oils more than very well supported. And a weakening € increased the price of all $ commodities by more than 20% compared to two years ago. The euro may weaken further.

This week began with a rebound in edible oil prices following a bullish USDA/WASDE report on Monday.

It may also be that we get a softer economic landing than expected.

MARKETS

Soybean oil

Since beginning September, the trend for the soy complex was down, mainly due to expected record sowings in South America and an expected record yield next spring. In addition, demand from China, the biggest bean buyer in the world, also decreased in 2022.

Towards the end of the old crop season the oil leg in the complex found support from U.S. domestic demand for biodiesel production and from the reduced soybean crush in Argentina, the world’s largest soybean oil exporter. But everyone stayed optimistic on the new U.S. crop now being harvested.

The last WASDE report came a bit as a shock because since last month the USDA reduced its U.S. soybean production estimate from 123.30 to 119.15Mmt due to perceived lower yields. We shall recount the beans when they are all harvested and see what comes out of it. It will be key to watch the evolution of ending stocks in the U.S. and in the world which will be mostly influenced by south American weather, Chinese demand (revised down to 97Mmt) and north American biodiesel production and demand.

In Argentina, a new exchange rate arrangement was made between government and farmers, which means that farmers finally can sell their soybeans and get an honest pay for their hard work instead of only peso’s. Beans are already leaving the country.