Your Bi-weekly update on edible oils & fats by Aveno
Bi weekly dd January 8th 2024.

Since just before the start of the conflict in Ukraine, food commodity prices have been particularly volatile. Geopolitical tensions have increased as well as climate change and weather impacts, but in 2023 we experienced a continuous price decline for a lot of commodities including edible oils. As if we have become accustomed to cope with the worst situations.

Fundamentals did not change much lately and every day continued to have it’ story for higher or lower markets. Very broadly speaking, markets kept mostly moving sideways.

It’s not all doom and gloom but for now, bullish thoughts retreated to the background and bearish sentiments seems to dominate. Price pressures from retail and consumers get pushed up the chain. And with ample supplies of edible oils and fats there is more than enough for everybody. All looks flat and calm. But when everyone goes sitting on the same side of the boat, what must one do? At least reflect on it.

New beginnings

The Spring Festival, a new beginning according to a calendar based on the phases of the moon, is the most important celebration for Chinese communities around the world. In 2024, Chinese New Year begins on Saturday, February 10th, marking the start of the Year of the Dragon, a symbol of power, strength and good fortune. The celebrations include travelling, visiting and eating which in principle is all good for business and will end on February 24th with the Lantern Festival.

But China is ending its old year in a poor economic environment. The CSI 300 index (Chinese stock exchange) in 2023 closed in the negative territory for the third consecutive year. Last month factory activity dropped to the lowest level in six months and was also the third consecutive month of production decline.

In a new year’s speech, President Xi Jinping acknowledged economic challenges, that some businesses are facing tough times and that people are struggling to find jobs and make ends meet. Chinese youth unemployment is record high, the reopening of the economy after the covid hasn’t provided the expected revival and a problematic real estate market keeps weighing on confidence.

In EU, the industry is not booming either. Euro area business activity shrank in December and German inflation rose again which jeopardizes possible interest rate cuts.

So, there is a lot of room for improvement at the start of the year.

Developments of inflation and the (global) economy remain unpredictable; not to speak of geopolitical and climate or weather-related risks; but for our markets it certainly looks like global biodiesel production and stock reduction or tightening supplies in the coming months might change the fundamental outlook quite a bit and determine future price action!

Afterall, the year of the Dragon may become more exciting than the year of the Rabbit. ​ ​

Palm oil

Palm oil suffered from weak demand and spillover weakness from the bean complex and weak petroleum and a depressed macroeconomic context.… there was even a “predicting forecast model” from the US National Oceanic and Atmospheric Administration (NOAA) suggesting that El Niño has peaked in intensity and will begin a steady decline in January. It had impact but much less severe than expected, also in Malaysia, the Philippines, Indonesia… the world seems to be returning to La Niña.

The biodiesel story also plays in palm oil land and palm oil is the most used feedstock for biodiesel production in the world: about 25% of the palm oil production is used for biodiesel, most outside EU!

Another concern is shipping routes to EU via the Red Sea and Suez will be avoided and delay some vessels and increase shipping cost. Although it is always difficult to predict how shipping routes / trade flows around the globe adapt to changing situations like war zones, low water issues in the Panama Canal, etc.

Soybean oil

The excellent weather conditions in Argentina and rains finally affecting Brazil are eroding the risk premiums on the South American harvest. After months of drought, harvesting began very early in Mato Grosso, and at first sight revealed particularly poor yields. Yields are disappointing in the drought-stricken areas as well as in the overflooded areas. But it is still very early and harvest goes on till April so a lot surprises may still pop up. In any case everyone accepts a much lower crop than anticipated and most think it is already priced in. The next WASDE report might poke up the fire but it becomes more important to focus not only on Brazil but on South America as a whole, and on the use of soybean oil in biodiesel production in North and South America.

Though crude soybean in the US came down, they still command a premium over EU and Brazil! Even though some say biodiesel production growth lost some of its breath during holiday month December….

Rapeseed oil

Rapeseed started the year with a new downward turnaround under pressure from the American soybean complex. European crush remained very active. But the lack of business on the domestic market left the seed market under strong influence of the bean complex which weakened in response to weather improvements and harvesting pressure in South America. Early Australian rapeseed imports into EU also weigh on the market.

The biodiesel sector found some support from petroleum prices, which now and then find support from worrying tensions in the Middle East. 

BIOFUELS

At the beginning of the year and following the COP28 resolutions many have announced great leaps forward in CO2e reductions. From the shipping business several companies announced increased projects/trials/use of biofuels in 2024.

In Brazil a very tangible 2% increase of the biodiesel blending mandate, from the current 12 to 14%, March 1stonwards (15% in 2025), was confirmed. Every 1% increase means extra demand for about 5Mmt of soybeans (18% oil). About 70% of Brazil's biodiesel (7.3Mmt in 2024) comes from soybean oil. And Brazilian soybean processors are to crush up to 2Mmt more beans in 2024 to satisfy the additional demand. This limits bean and oil exports and analysts estimate Brazil to export 99Mmt of beans in 2024 versus a record 101.8Mmt in 2023.

In January 2024, to further curb greenhouse gas emission (GHG) in the transport sector which accounts for more than 30% of all French GHG emissions, the required minimum share of renewable energy in France will go from 8.6% to 9.2%.

In 2030, 29% of energy consumption for all EU transportation -trains and boats and planes and cars and trucks and flying carpets- will have to come from renewable sources, or achieve a 14.5% reduction in the sector’s greenhouse gas intensity through the use of renewables (incl electricity, biogas, ethanol, etc. and of course biodiesel).

Oil World expects the global production of biodiesel to further grow 3.8Mmt in 2024 to 61.4Mmt. This mean that 20% (52.65Mmt) of global edible oils& fats consumption will go to biodiesel production!

Petroleum

Concerns around the global economy, a weak commitment to output cuts from OPEC+ members and higher productions outside OPEC+, continue to weigh on petroleum prices. Last year, the US became the world's largest petroleum producer ever, with a record 13.3Mbbl/day mid-December. More than the largest OPEC+ producer, Saudi Arabia (10.4Mbbl/d in 2022), ever produced. Higher prices after the Russian invasion of Ukraine prompted shale oil producers to invest in more production capacity, of which a large part only recently reached full potential after which the number of barrels per day soared rapidly. Just above the records of 13.1Mbbl/d in March 2020. Tensions in the Middle East and the Red Sea remain at the center of attention and a major concern.

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