Your Bi-weekly update on edible oils & fats by Aveno

Bi weekly December 11th 2023.

Going forward, soybean crop conditions in South America, the seasonal decline in palm oil production, a tightening global vegetable oil supply January onwards, biodiesel policy implementations (economy and elections in 2024!), the global economic environment, energy prices, etc. will all be drivers for edible oils and fats price developments next year.

But what’s another year?

MARKETS

Palm oil

Even though we’re gliding into the low seasonal production months and Malaysian palm oil inventories at the end of November were seen falling for the first time since April, palm oil futures completely lost it. There was a lack of buying interest from key destination markets. In India, buyers cut orders for December and January shipments as they are still sitting on large stocks.

Bearishness from other edible oils and energy spilled over to palm. But a bullish concern is the projection that palm oil production in the 23-24 season will only grow 0.2Mmt vs. the average annual growth of 2.5Mmt of the past ten seasons, as El Nino-related moisture deficits were reported across Indonesia and Malaysia in past months.

Soybean oil

The December WASDE-report last Friday had only minor changes. The soybeans stocks to use ratio, a concern for bean owners with the predictions for a record crop in South America, was not increased. The USDA lowered Brazil's soybean production by 2Mmt to 161Mmt but this is still above what others had moved forward, even as low as 150Mmt, as there are weather related production issues. In Argentina prospects for a record crop improved dramatically leading some to believe this may compensate losses in Brazil. Argentina is going to double from last year's decimated crop (drought) so both countries combined may bring a bumper soybean crop and that made CBOT beans retrieve to $13 last week and analysts think bigger weather problems are needed to move beans higher.

The USDA left soybean ending stocks in the US unchanged and world ending stocks were only lowered slightly. Markets remain susceptible to changes reflecting information on demand or weather, so volatility will stick around. The next USDA reports are on Friday, January 12th, and will shed more light of where we stand.

In EU soybean oil prices, especially on deferred, pressured by bearishness in other oils, came down considerably.

Rapeseed oil

Some time ago, rapeseed prices resumed an upward trend, driven by slightly more dynamic demand in EU. Delays in coverage began to appear and triggered some intra-Community exports. On the other hand, since July 1st, EU imports stayed much lower at 2.1Mmt than last year's 3.1Mmt.

Some downward pressure on rapeseed prices appeared because the soybean complex corrected downwards thanks to favorable rains in Brazil and because petroleum prices weakened. Seed buying interest remained limited but the market is still short. If the market starts to square positions before Christmas holidays, that buying activity could get supportive.

Rapeseed prices experienced volatility on changing soybean crop estimates but for rapeseed, StatCan has increased the final 2023 Canadian crop by almost 1Mmt to 18.33Mmt (16.7Mmt in 2022), while in Australia Abares increased the crop forecast by almost 1Mmt to 5.52Mmt (8.3Mmt in 2022). The drought being less severe in both countries than initially feared. Despite record seed processing in Canada the country needs to export to get rid of all that seed. Canadian and European prices are now moving towards each other.

Beginning January, we had EU seed prices near €600 which dropped to €430 in March and €385 end of May. The low seems to be €400 the high €500. Present values are probably fair and as we move on in the season volatility is not excluded but the downside potential may be limited.

Rapeseed oil prices have been pressured by an ample global availability of seeds and ample good margin crushing. Recent weakness in petroleum/energy prices contributed to bearish feelings. Still, some expect a good biodiesel demand in Q1of 2024 which is just around the corner!

Sunflower seed oil

Russia has been trying hard but has not been able to fully disrupt the export flow out of the Ukrainian terminals on the Danube and in Odesa. Beside exporting oilseeds UA continued to surprise with sunflower seed oil exports. In EU not much was traded.

Olive oil

Olive oil production was down due to drought around the Mediterranean Sea which triggered much higher pricing and a remarkable drop in consumption. Consumption in Spain, a producing country, fell by 25%. In the October 2022-September 2023 period, global consumption dropped to a 15-year low, resulting in somewhat higher ending stocks end September than expected earlier. This helps a bit to compensate the consequences of the present poor harvest in EU. We also saw more imports from outside EU and a continuing shift in consumption: less in producing countries and more in non-producing countries, which has a lot to do with household purchasing power.

USD, mineral oil and biofuels.

A possible drop in policy interest rates in EU, to revive the economy, could mean a weaker Euro. This is something wished for to put a weakened German economy back in the saddle. It would help exports but make imports more expensive.

In just over a year, to combat inflation, the European Central Bank (ECB) raised its policy rate, from -0.5% to 4%. With inflation falling in a stagnating economy, it’s hard to conceive why the ECB would not cut interest rates. Still, the ECB said policy interest rates must remain at the current level "long enough to sustainably reduce inflation to the 2% target”, which is only expected to be reached by mid-2025. Rising labor costs also conflict with the 2% inflation target.

Eurozone economies have contracted. Outstanding bank loans, for businesses are decreasing, i.e. repayment of existing debt exceeds new loans while a growing economy is generally paired with an increasing amount of credit. Employment remained relatively high but this indicator can respond with delay to a declining economy. In November, inflation in the Eurozone (2.4%) fell more than expected on lower energy prices and a slower rise in prices of food, industrial goods and services. Core inflation also fell more than expected, to 3.6%, due to a weakening demand and a more relaxed supply chain. This leads pessimists to believe the ECB will cut rates in spring. 

​A (business and consumer) survey conducted by the Directorate General for Economic and Financial Affairs (DG ECFIN) showed that, in November, in EU and in the Eurozone, economic sentiment was mildly up while employment expectations continued downhill. Optimists think this indicates a bottoming out.

​Similar considerations as above apply to the US economy. In China, the largest global importer of petroleum, business confidence in industry and services also continued to disappoint. A continuing bearish sentiment about the Chinese economy on top of a strong crude production in the US outweighed again any fears for OPEC production cuts. The market, so far, was not impressed.

BIOFUELS

This year the production of biodiesel increased remarkably in the US, Brazil and Indonesia. This means an increase in consumption of oils and fats of about 2.5Mmt/year and is likely to continue increasing.

Besides decarbonizing road transport and heavy-duty vehicles, decarbonizing shipping and aviation is impossible without boosting advanced biofuels usage. ‘Drop-in' biofuels are essential to decrease emissions from shipping and aviation with immediate effect.

At the COP28 in Dubai the World Shipping Council (WSC) together with the International Maritime Organization (IMO) called on authorities to agree on regulations that provide them investment certainty to accelerate the transition to green fuels. And recently the world’s largest food and beverage company, Nestlé, reported it had agreed with its shipping partners to “move half of its global shipments with alternative fuels” in order to reduce GHG emissions from shipping by around 200,000 mt of CO2e. (note there are other green fuels for ships than biodiesel e.g. ethanol, ammonia, hydrogen…)

Since April, EU legislation compels all planes taking off in EU to tank a minimum of sustainable aviation fuel (SAF). By increasing this yearly (2% by 2025 to 6% by 2030 and further on) the aim is to reduce CO₂ emissions from EU airlines by abt. 66% by 2050. And end November a Virgin Atlantic Boeing 787 flew the world’s first 100% SAF transatlantic commercial flight from London to New York. Proving SAF is a safe drop-in alternative to fossil jet fuel and a viable solution for decarbonizing aviation.