Unsustainable upward momentum?
Your Bi-weekly update on edible oils & fats by Aveno
Bi weekly November 27th 2023.
Much of the up and down moves where driven by South American weather which strengthened or eased concerns for the soybean crop. Petroleum price evolution and profit taking also impacted price movements.
To change the tune of ‘El Niño dryness’, in EU unusual heavy rains have been giving farmers headaches over harvesting (potatoes, sugar beets…) and plantings and conditions of winter crops.
After low water levels due to drought with barges at risk of scraping the bottom of the river or being stranded, now unusually high-water levels on the Rhine created new transportation headaches. Many oilseed processors, like many other German companies, use the Rhine to move goods to and from plants. The situation is no further deteriorating but with the weather, who knows what might happen next? The same goes for future El Niño developments around the globe.
Going forward in 2024 and all other things remaining equal, there is a possibility that oil surplus buildup seen in the past season will not be repeated and that global demand, much on account of biofuel production, will outstrip supply. Markets are likely to remain nervous, and volatile.
MARKETS
Palm oil
The POGO (palm oil/gas oil) spread turned positive after a period of lower palm oil prices versus gas oil (diesel) which makes palm oil less attractive as biofuel feedstock.
The seasonal production drop, in South East Asia, should start kicking in soon and may lead to price optimism if all goes well (depending on your point of view). India is expected to sideline for a while but evolution of exports and end stocks will determine fundamental direction. The market is also pricing in a possible delayed negative effect on the 2024 production of an earlier “El Niño moisture deficit” in the region. Remains to be seen what will come of that.
Soybean oil
Early predictions for a record soybean crop in South America in 2023/24 looked promising, but weather conditions weigh on the production outlook. This year, Brazil’s planting pace is slow and farmers still have about 30% to go. Last week, about 65% had been sown compared to the 5-year average of over 80%.In Brazil, despite some showers in the north last week, soil moisture remains too low and the forecast is for more dry weather. The south, remains too wet. Bean prices suffered significant losses following the announcement of rain in Brazil, but prices may still react, upwards, to less generous rains than announced/expected.
The US the harvest is done and the situation in South America with increased Chinese buying have supported soybean prices. However, before Thanksgiving (Nov. 23rd) and a long weekend for most, while it rained in Brazil, the Chicago Board of Trade saw a soybean sell-off. Lower petroleum prices and profit taking helped the movement.
In the US soy oil stocks remain low despite a record soybean crush. Domestic consumption remains elevated and an anticipated slowdown in biodiesel production seemingly has not materialized yet. In EU soybean oil is at a $140 premium over rapeseed oil and thus not attracting much buying interest.
Rapeseed oil
The volatile soybean complex impacted EU seed prices, despite little business happening. In EU rapeseed prices followed the movements of soybean prices. Since November 1st it’s been trading sideways in a range of €430-445/mtand Friday the Feb 2024 position on MATIF closed at €438/t. There was also an increase in Ukrainian seed imports despite limited demand.At current rapeseed oil prices not much exports from EU were to be expected and crude rapeseed oil prices remained stable. But now the premium over sun and palm eroded; in EU crude palm, sun and rape prices are trading very close to each other! Biodiesel margins are not great which might help limit upward potential but if palm and sun in EU continue to rise it will be supportive to a heavy rape SnD.
Sunflower seed oil
Ukraine strengthens control on agricultural exports and since August, the Odessa region had already conditioned the loading of ships on an “analysis of the legality of the origin of goods”. The country also announced the termination of cash payments at Danube ports.Authorities introduced compulsory registration for agri-food exporters to prevent wrongdoings, in particular tax evasion. There are estimates that almost a third of exports were paid for in cash and avoiding taxes. Exporters must now be “registered in the agricultural register”, be subject to VAT, and without tax debt or delay in the reimbursement of foreign exchange earnings.
The Ministry of Agriculture said a sharp drop in agricultural exports vs. last year is due to the blockade of its Black Sea ports and Russian bombing of export terminals on the Danube. But Ukraine's successes against Russia's Black Sea Fleet lifted confidence in its ability to protect ships entering and leaving its ports. Authorities have also reached agreements with insurers to soften ship insurance costs.
USD, mineral oil and biofuels.
As OPEC+ struggled with economic growth worries, weakening its price control efforts, the global economic outlook continued to outweigh geopolitical tensions and the existing petroleum production cuts. On November 16th, Brent petroleum fell to $78/bbl., its lowest level since mid-July. After which petroleum prices did recover on announced new extra supply cuts by OPEC+. However, prices were pressured following a disagreement among OPEC+ members about production levels, increased inventories in the US and indications of solid supplies from non-OPEC countries. OPEC+ rescheduled a policy meeting to the end of the month to try reach an agreement on future extra production cuts.
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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.