Biweekly February 16th 2024.
Of celebrations and markets.
In Rio, Breda, Aalst, Binche, Venice, Cologne, Nice, New Orleans, in all corners of the world carnival was once again vigorously celebrated, breaking the monotony of winter. Masks, costumes, parades, color, satire, and dancing in the street culminated on Mardi Gras preceding the 40-day period of penitence and fasting, observed by Christians, before Easter.This carnival coincided with the start of the Chinese New Year festivities beginning with Lunar New Year’s Eve, on February 9th, with big family diners (good for business) kicking off the 15-day Spring Festival. Chinese employees get a week off from work to visit family and celebrate. The Lantern Festival on February 24th will end the Spring Festival with people lighting lanterns to drive out the darkness of winter, and call-in spring and hope for the new year.
Lovers around the world also celebrated their love, the 14th on Saint Valentine’s Day with empathy for “what becomes of the broken hearted”.
Pre and post event celebrations may have, for a while, put out of sight or mind business activities but the world kept on turning. War wages on in Ukraine and Gaza, unhappy European farmers keep protesting and climate and ESG challenges stayed at the forefront while conflicting effects on price continued to brush the price picture.
There have always been and there will always be bulls and bears but it has been more difficult lately to judge where the balance of power is shifting to. All eyes remain on South America which largely dictated market movements -mostly down-, and stronger petroleum prices supported the oil complex a bit while palm oil grew stronger on lower production numbers.
Laurics and palm got a bit bullish while soy, rape and sun remained a touch bearish. All this amidst concerns for a tightening oil supply in coming months mainly -but not only- due to globally ESG driven demand: production of biofuels. A weakening euro also contributed to price strength of imported goods into EU.
Markets
Speculation around interest rate cuts from the central banks now favor a stronger dollar vs. a weakening euro. A recent report from the International Energy Agency claimed petroleum demand is trending lower and so they adjusted their 2024 growth demand forecast downwards to “just” 1.22Mbpd… but it is still growth! However, it remains difficult to judge how economies are evolving. Is it really bottoming out as some think or must it first get worse? Now that the UK and Japan were also reported to have a contracting economy…
Palm oil
Palm oil futures had a ride back up again but failed to break through the MR 4000 marker. The lower production numbers do generate a bullish sentiment but subdued demand from China and India, still sitting on comfortable stocks, counterbalance that. The last MPOB report showed end January Malaysian stocks at just 2.02Mmt, the lowest in six months and execution of sales contracts for export was at 1.35Mmt, the best January since 2019. But, February already looks less promising… which should curb the bullish enthusiasm.
The present premium of palm oil prices over soy, sun and rape seems not sustainable long term and is killing demand. Or is this a new reality the oil world must learn to live with? Is it some old school “dogs of Pavlov” keeping a stubborn focus on Chicago and the Bursa Malaysia, looking at how soy oil FOB Houston compares to palm olein FOB Malaysia while forgetting to look at FOB Brazil because their Portuguese is not good? Anyhow, time solves all problems and in the long run the market (arbitrage) will ensure that prices do not deviate substantially from fair value for long. But which one will be strongest? The one pulling up or the one pulling down?
Apart from some Argentinian neutralized soybean oil being shipped to California for biofuel production, cheap South American oil didn’t yet fully start to equalize the soybean values around the globe nor did it, seemingly, yet displace demand in style elsewhere.
Noteworthy is that in the US domestic disappearance of edible oils and fats in 2023 rose to 29Mmt vs. a production of abt. 22.5Mmt. On top of the import of 6.6Mmt of oils also 1.4Mmt of UCO (used cooking oil) and 1.7Mmt of biodiesel were imported. To make it even more spectacular: the net import of tallow and greases was 660.000 mt vs. a net export of 205.000 in 2021 and abt. 1.1Mmt in 2010! The biofuel production in the US is attracting oils and fats by throwing money at them and as such establishing new trade flows like Australian and European tallow imports. Be aware though that the “renewable diesel and sustainable aviation fuel (SAF)” are more complex than merely using edible oils. There is also a fight with corn growers to use/include ethanol for these new fuels…. Not to speak of cellulose-based fuels etc. Then there is the price issue of these fuels. But the money for oilseed crush capacity expansion and investments in HVO/SAF production capacity has already been put on the table. It is happening in front of our eyes. Fundamentally that is very bullish.
Looking forward, the next EU rapeseed crop is expected to drop by 7% to 18.4Mmt due to a sharp decline in planted areas in most producing countries. In France, the situation looks good for early-sown rapeseed, which is apparently doing better than other winter crops, but observers are wondering about the impact of wet conditions in several countries such as Germany, especially if farmers cannot fertilize their fields on time. And it is still unclear what the frost damage is in Eastern EU, the Baltics, etc.,
Soybean oil
The soybean complex remains under pressure due to a slowdown in international bean (meal) demand and aggressive competition from Brazil. The weather turned more favorable for Argentina with beneficial rains after a heatwave and dry weather in parts of Brazil after the rain. There is still a lot of speculation about the crop size and it is clear that the initial forecasts won’t be met, but it looks good and a record bean crop is ‘being baked’!Apart from some Argentinian neutralized soybean oil being shipped to California for biofuel production, cheap South American oil didn’t yet fully start to equalize the soybean values around the globe nor did it, seemingly, yet displace demand in style elsewhere.
Noteworthy is that in the US domestic disappearance of edible oils and fats in 2023 rose to 29Mmt vs. a production of abt. 22.5Mmt. On top of the import of 6.6Mmt of oils also 1.4Mmt of UCO (used cooking oil) and 1.7Mmt of biodiesel were imported. To make it even more spectacular: the net import of tallow and greases was 660.000 mt vs. a net export of 205.000 in 2021 and abt. 1.1Mmt in 2010! The biofuel production in the US is attracting oils and fats by throwing money at them and as such establishing new trade flows like Australian and European tallow imports. Be aware though that the “renewable diesel and sustainable aviation fuel (SAF)” are more complex than merely using edible oils. There is also a fight with corn growers to use/include ethanol for these new fuels…. Not to speak of cellulose-based fuels etc. Then there is the price issue of these fuels. But the money for oilseed crush capacity expansion and investments in HVO/SAF production capacity has already been put on the table. It is happening in front of our eyes. Fundamentally that is very bullish.
Rapeseed oil
Seed prices (may futures €422) got some support from reluctant farmer’s selling as we approach full cost of production (in some producing area’s), from the continuing tensions in the Red Sea and higher palm oil prices. Firmer petroleum prices on escalating Middle East tensions support the entire biofuel sector and shipping problems via the Red Sea also hamper the smooth flow of Australian rapeseed to EU. There is also concern about global availability of the “petroleum distillates” gasoline and diesel in 2024 which is generally supportive to biofuels production as well.Looking forward, the next EU rapeseed crop is expected to drop by 7% to 18.4Mmt due to a sharp decline in planted areas in most producing countries. In France, the situation looks good for early-sown rapeseed, which is apparently doing better than other winter crops, but observers are wondering about the impact of wet conditions in several countries such as Germany, especially if farmers cannot fertilize their fields on time. And it is still unclear what the frost damage is in Eastern EU, the Baltics, etc.,
A certain amount of caution is therefore necessary for the 2024/25 season, as rapeseed prices are expected to increase due to the tightening of vegetable oil balances in EU and the rest of the world. However, weather permitting, better harvests elsewhere could offset losses in EU and although caution is advised, it is too early to panic.
Rape oil is caught in between firmer palm oil and cheap South American soybean oil and demand for oil remained somewhat subdued in a not very active market. However the biodiesel industry has been buying the end of season MJJ period which may indicate some kind of bottoming out.
Shipping from the Black Sea via Suez-Red Sea to India has become risky and navigation via the Cape is more expensive; in the meantime origin stocks are building up.
Rape oil is caught in between firmer palm oil and cheap South American soybean oil and demand for oil remained somewhat subdued in a not very active market. However the biodiesel industry has been buying the end of season MJJ period which may indicate some kind of bottoming out.
Sunflower seed oil
On mostly favorable economics in most producing countries, global new crop prospects look good. For EU production of sunflower seed is seen to grow from 9.9Mmt last year to 10.7Mmt on account of yield increases, but all subject to cooperating weather.Shipping from the Black Sea via Suez-Red Sea to India has become risky and navigation via the Cape is more expensive; in the meantime origin stocks are building up.
Oil prices in EU are at a large premium (at least $75) over Black Sea sun oil and with farmers protesting at the border about Ukrainian “Agri-imports” depressing prices, there is a risk for a higher wall between B/S and NWEU prices.
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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.