Your Bi-weekly update on edible oils & fats by Aveno
Bi weekly dd January 22nd 2024.
Up or downside potential?
How much money is pulling out of commodities to go into stocks and bonds remains an open question but, for a while now, managed money or “the funds” have been selling every rally and have built quite some short positions which at some point will have to be squared.Depreciating soybean and soybean oil prices however contrasted with the rapid appreciating palm oil futures and sunflower seed oil prices in the past weeks, while the rapeseed complex mostly followed the bean complex. There are forces pulling the market up and others are pulling down.
A real break out will depend on numerous factors, including the South American soybean production, the global buying appetite for palm oil and the evolution of inflation and the global economy.
In a cold and snowy third week of January, European natural gas futures fell to €28.43/MWh, a level not seen since last summer. Storage levels at 77.5% (Germany 83%, Italy 73%, France 69%) are significant and EU is expected to enter spring with more than 50% of underground gas storage capacity filled, well above the 10-year average of 35%. Overall weak demand, industry included, reflects a weakening economic environment.
Palm oil
Palm oil prices moved to their highest level since mid-November on the Kuala Lumpur Stock Exchange, after the Malaysian Palm Oil Board confirmed the sharp contraction in supply and India decided to maintain the reduction in customs duties on vegetable oils until March 2025. China as well as India, attracted by previously lower prices had shown renewed buying interest.
Malaysia’s production is at its lowest in months but this is not alarming, this seasonal production decline is normal and will normally bottom out next month. End stock evolution in producing countries and buying behavior of importing countries will determine if the market breaks the 4000 Malaysian Ringgit level and if it can stay there…. Also, competition for market share from rival oils like eventually cheaper (Argentinian) soybean oil and/or Black Sea sunflower seed oil will influence palm oil prices.
Soybean oil
Much uncertainty remains about the size of Brazil's crop, with estimates ranging from 135 to 157Mmt. But markets remained unimpressed. The USDA’s January WASDE report, with global stocks adjusted upward, was fairly neutral to bearish and for about a month, in Chicago, soybean and soybean oil futures kept moving south.
Even though the Brazilian harvest is far from over, people are already looking at Argentina's new crop, which will hit the market starting April. In Argentina, soybean production is estimated at 50.5Mmt and optimists even predict as much as 53Mmt. This compares with abt. 22Mmt in 2023, when the country's worst drought in more than 60 years reduced yields and plantings. With El Niño having stopped the drought and bringing perfectly timed rains during the planting season, the crop is in excellent condition.
Brazil too has gotten better weather and there is no fear for a global shortage of soybeans. On the contrary. There are some concerns for an oversupply of soybean meal. Meanwhile Chinese appetite for beans is fading because the shrinking number of pigs is curbing feed demand (=less demand for soybean meal).
China, which raises about half of the world's pigs, is coping with poor margins, as well as outbreaks of African Swine Fever that force the culling of tens of millions of pigs. Meaning China needs to crush less soybeans for meal and therefore produces less soybean oil, which creates extra Chinese demand for (imported) palm, soy and sun oil.
In principle, in the US, bean prices should remain fairly high due to the rising domestic crush, fueled by soy oil demand for renewable diesel production. Presently a strong crush capacity expansion is going on. But despite that domestic demand for soybean oil is strong and expected to grow further, soybean oil futures prices dropped. But, last week crude soybean oil prices FOB Gulf of Mexico in the US where still $250 above FOB Argentina, $230 above FOB Brazil and $65 above Fob Dutch Mill!
Additional crush capacity coming on line in the US, increasing imports of biodiesel and of competitive feedstocks for biodiesel production will pressure the US soy oil market down. Neutralized soybean oil from Argentina, specifically for renewable diesel production, has been approved for use in the US and a first cargo was unloaded in California. This may result in lower soybean oil prices in the US but in higher prices elsewhere as the markets level out.
Additionally, the extra soybean meal produced in the US will go on the world market which will result in lower crush margins outside the US and make it less attractive to crush soybeans in e.g. EU where higher soy oil prices will have to generate the income to make up for the crush margin difference. All in all, a scenario with some bullish potential for soybean oil in the mid to long term. Especially with Brazil’s biodiesel production increasing, leaving less oil to be exported. This global soybean oil strength, which is now more or less contained in the US, may spill over to other oils!
It is only the beginning of the year and already the market is looking forward and also trading/buying the MJJ positions (end of the EU rapeseed marketing year). And figuring out what the new crop seed supply will be. The 2024 rapeseed crop has been revised down by 0.8Mmt as seemingly less winter rapeseed has been planted. Notably Romania has been too dry during the sowing season. It is not yet known how much damage the wet weather and the frost have caused. There is talk of winter kill in DE, DK and PL where the young crop did not have sufficient snow cover (due to rain and warm weather before the frost set in). But it is very early in the season and there is no lack of seed nor oil.
Price direction will depend on competitiveness of south American soybean oil and further evolution of palm oil prices. There are still ample supplies of seed and oil which have to find a home later in the season.
Brazil too has gotten better weather and there is no fear for a global shortage of soybeans. On the contrary. There are some concerns for an oversupply of soybean meal. Meanwhile Chinese appetite for beans is fading because the shrinking number of pigs is curbing feed demand (=less demand for soybean meal).
China, which raises about half of the world's pigs, is coping with poor margins, as well as outbreaks of African Swine Fever that force the culling of tens of millions of pigs. Meaning China needs to crush less soybeans for meal and therefore produces less soybean oil, which creates extra Chinese demand for (imported) palm, soy and sun oil.
In principle, in the US, bean prices should remain fairly high due to the rising domestic crush, fueled by soy oil demand for renewable diesel production. Presently a strong crush capacity expansion is going on. But despite that domestic demand for soybean oil is strong and expected to grow further, soybean oil futures prices dropped. But, last week crude soybean oil prices FOB Gulf of Mexico in the US where still $250 above FOB Argentina, $230 above FOB Brazil and $65 above Fob Dutch Mill!
Additional crush capacity coming on line in the US, increasing imports of biodiesel and of competitive feedstocks for biodiesel production will pressure the US soy oil market down. Neutralized soybean oil from Argentina, specifically for renewable diesel production, has been approved for use in the US and a first cargo was unloaded in California. This may result in lower soybean oil prices in the US but in higher prices elsewhere as the markets level out.
Additionally, the extra soybean meal produced in the US will go on the world market which will result in lower crush margins outside the US and make it less attractive to crush soybeans in e.g. EU where higher soy oil prices will have to generate the income to make up for the crush margin difference. All in all, a scenario with some bullish potential for soybean oil in the mid to long term. Especially with Brazil’s biodiesel production increasing, leaving less oil to be exported. This global soybean oil strength, which is now more or less contained in the US, may spill over to other oils!
Rapeseed oil
Rapeseed is mostly following the ups and downs of soybeans and of course looking at the evolution of petroleum which is a bit volatile and torn between macroeconomic fears and the risks of disruption of supply chains via the Red Sea. Business remained limited in an environment of strong downward pressure on soybeans and the rise in palm oil prices.It is only the beginning of the year and already the market is looking forward and also trading/buying the MJJ positions (end of the EU rapeseed marketing year). And figuring out what the new crop seed supply will be. The 2024 rapeseed crop has been revised down by 0.8Mmt as seemingly less winter rapeseed has been planted. Notably Romania has been too dry during the sowing season. It is not yet known how much damage the wet weather and the frost have caused. There is talk of winter kill in DE, DK and PL where the young crop did not have sufficient snow cover (due to rain and warm weather before the frost set in). But it is very early in the season and there is no lack of seed nor oil.
Sunflower seed oil
The past record exports of sun seeds and oil from the Black Sea region to the global market brought back stocks to a very manageable level, causing prices to appreciate. But this means that buyers whom already had bought a lot were less interested in new business. Although recent Turkish interest in Ukrainian oil continued to support prices.Price direction will depend on competitiveness of south American soybean oil and further evolution of palm oil prices. There are still ample supplies of seed and oil which have to find a home later in the season.
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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.