Your biweekly update on edible oils & fats by Aveno.

Money

Since the last European elections, an unfavorable strengthening of the dollar came upon us on perceived political turmoil in EU.

Since the beginning of the year the Eurozone economy has been on the path of recovery on one leg only with the services sector doing relatively well but with the industry, in recession since early 2023, showing no signs of recovery.

The European Commission is tightening the screws on five eurozone countries and recently announced the launch of “excessive deficit procedures”, meaning the return of budgetary discipline and in terms of fiscal policy the end of virtually unlimited fiscal stimulus.

What the impact of all this will be on the EURO and long term interest rates in individual member-states is unpredictable but it is safe not to expect a stronger Euro anytime soon, making imports more expensive.

Sharply higher energy markets are again supporting the biofuels sector and all edible oils and fats prices. Petroleum prices returned to the highest level since April 29th on improved demand in the US, on building in a geopolitical risk premium when Israel warned for a possible "all-out war" with Lebanon's Hezbollah, on the beginning of the hurricane season in the US (+ Gulf of Mexico) and on strong demand in Asia. In the Eurozone demand dropped.

Although edible oils & fats markets linger on a bit directionless, there are some underlying long-term worries. A surplus of soybeans is counterbalanced by an outlook for a bit fewer sunflower seed and especially rapeseed supplies. This amidst a still doubtful full recovery of palm oil production, next to a booming (policy driven) global biodiesel outlook on top of a normal population-linked consumption growth.

Markets

The vegetable oil sector remains under pressure due to the rapid recovery in the competitiveness of palm oil. Since early June, palm oil futures in Kuala Lumpur have been moving mostly sideways just under MYR 4000/mt and pressured by a possible further contraction in Malaysian exports.

In India vegetable oil stocks are still (relatively) low while China has been rebuilding inventory but the rebound in Hindi and Chinese demand for vegetable oils continued to support the sector as a whole. India's palm oil imports rose 11.6% in May from the previous month, with larger purchases due to palm oil being cheaper than competing oils. June imports in India are expected at the same level.

In May, the MPOB recorded a Malaysian production of 1.7Mmt, the highest May production in 9 years. Good weather conditions, more working days and a larger workforce all contributed to the rise. The improved labor situation in Malaysia is helping Malaysia to increase production but Indonesia has been lagging behind. Both producers are now expecting beneficial rains that will help to further improve production. 

Soybean oil

In Argentina the harvest is done but farmers are not selling and keeping the beans in store.

In the US seeding progressed well while growing conditions look pretty good. Crop progress data showed 93% of the crop was planted as of June 16 and 82% of the crop emerged.

According to the National Oilseed Processors Association, soybean oil inventories in the US dropped (- 5.93%) below market expectations last month, despite a record and above expectations soybean crush during the period. Meaning there is good demand for oil, likely driven by biofuel production as soy oil became more competitive compared to alternative inputs. The biofuels sector is now also being helped by a very strong rise in petroleum prices.

In the last week of the month, the market, will be watching the weekly Export Inspections report and the Crop Progress report on the 24th. Export Sales data will be published on Thursday, and Friday the Planted Acreage and Stocks report which usually tends to be a market mover….

Rapeseed oil

Rapeseed continues to suffer from a lack of competitiveness and the weakness of the soybean complex and palm oil. Canadian rapeseed dropped remarkably fast since the beginning of the month, in response to weather improvements in the main producing areas and disappointing exports.

Although Australian and Canadia crops benefit from favorable weather, in Western EU potential yields and quality have been reduced in recent months, and the return of expected showers late June could further worsen crop conditions. Hence the caution of producers given the uncertainties related to yields after extremely rainy months.

The latest COCERAL crop forecast, released on June 10, sees a rapeseed crop of 19.4Mmt for EU-27+UK which is 2Mmt down from last year’s 21.4Mmt. In EU, farmers reluctantly started selling before harvest begins, putting some seasonal pressure on prices. Nevertheless, the EU supply and demand situation will be under tension in the coming season and highly dependent on imports!

In Ukraine harvesting began and seed could be in ports, ready for shipment, starting mid-July. Recently Ukraine's Ag. Ministry indicated a production of 4Mmt of rapeseed or abt. same as last year. Other analysts see it much lower though…. Time will tell soon enough.

Euronext’s “commitment of traders report” for the week ending June 14 showed a rapeseed net long position drop of 13% to a mere 8,673 contracts, which is quite neutral. Last Friday, August 24 rapeseed futures closed at €462/mt.

Biodiesel margins are strong. In Europe crude rapeseed oil, which even eased about €50 since end May, remains expensive against other oils.

Sunflower seed oil

Activity remained on the low side. The recent inertia and slow inter-action of sun oil with other oil markets may have come from expectations of ample supplies for the next season. Global production of sunflower seed is forecast to grow to nearly 60Mmt on increased acreage. Farmers have chosen to plant more because the economics work for them. Also, old crop supplies keep popping up for sale, but against no buying interest. The question then arises if the old crop carry-out (seed/oil) estimates are correctly assessed. 

After a recent price drop and a differential of around $40 between old and new crop oil, buyers stay cautious. And lately, Egypt bought a parcel of crude soybean oil at $1003/mt and a smaller parcel of crude sun at $1074/mt, which shows the big price spread between the two. And for the moment the bean complex remains pretty heavy…

And although sunflower oil prices find support from an expected decline in export supplies until the arrival of the new crop and unusual dry conditions in Russia and Ukraine, at a certain point in time, if seed and oil are produced, the oil will have to buy itself a place in the global market. So, price will depend on how competing oils are evolving, on the exact old crop carry-out, being the new crop carry-in, and of course on weather developments. 

Biofuels

EU’s FuelEU Maritime regulation will be implemented on January 1, 2025, as part of the Fit for 55 package. The goal is to reduce CO2 emissions from shipping by 55% by 2030, compared to 1990. The regulation complements the introduction of the European Emissions Trading Scheme (ETS) in shipping, which began this year and it promotes the use of renewable/low-carbon fuels to progressively reduce the greenhouse gas emission intensity of consumed fuel. The greenhouse gas intensity requirement applies to 100% of fuel consumption between EU ports and 50% of fuel consumption on inbound and outbound journeys to and from EU ports. Non-compliance with the regulation will result in dissuading penalties. Ships today usually consume very low sulfur gasoil. Already, sometimes, biodiesel is being blended in on customer demand. Impossible to quantify how much a pull this will be on biodiesel…. But there is certainly not enough used cooking oil nor animal fat available to fly planes, fuel ships and trains and everything else. The maritime sector is also working on alternatives…