Your biweekly update on edible oils & fats by Aveno.

The oilseed complex also came under pressure from the rapid progress of soybean plantings in the US and the more favorable weather conditions in Canada and Australia, sustaining the strong relation between weather developments and prices of oils & fats. Despite this weakness palm and sunflower seed oil remained relatively strong.

Even though inflation is certainly not behind us, we have entered a period of interest rate cuts in order to juice up slowing or stagnating economies while the media keep reporting on many companies across all industry segments involved in job-cutting and/or cost-cutting exercises.

Despite wage growth allegedly outpacing inflation, in the Eurozone, retail sales continued the stagnation trend that started in 2023. Expectations for coming months remain pessimistic as stocks keep building and sales price expectations continue to decline. Also, unsold Chinese electric vehicles keep piling up in port areas as consumers keep sidelining. Looks a bit pessimistic but “it's always darkest before the dawn”.

There is often a lot of psychology and exaggeration driving a market one way or the other and everyday holds a new story for doing the opposite from the previous day. It is therefore important - and difficult- to keep a long-term view on fundamentals.

Palm oil

Production picked up and so did exports out of origins as palm stays attractively priced. Palm oil futures even rose above the MR 4000 level to fall back, pressured by lower energy and soybean oil prices.

The market is looking at what India and China will be doing in terms of purchasing oils & fats to replenish stocks and how that will translate in the stock evolution in producing countries. Competing oils are more expensive than palm oil which may put some resistance against declining price trends, should production and stocks continue to rise strongly in coming months.

Soybean oil

The latest NASS Crop Progress report showed that, in the US on June 2nd, 78% of the bean crop was planted (5% faster than average) and emergence was 55% complete (3% faster). Weather seems to be cooperating with the farmers so no stress from there yet…, but the critical growing months are still ahead of us and a volatile weather market is still very possible and likely.

For now, overall soybean fundamentals look bearish. The damage from the floods in Rio Grande do Sul, Brazil, has not yet been fully sized up but as there are plenty beans around, it doesn’t seem to worry the market too much. The CFTC Commitment of Traders report for the period ending June 4th showed managed money increasing their soybean net short (futures and options). Meaning folks are confident going short beans. In the US soybean oil returned to “normal values” and is competitive on the domestic market.

Rapeseed oil

Rapeseed prices fell sharply in response to the fall in petroleum prices. The decision of OPEC+ to relax its production constraints pushed petroleum prices down, thus degrading the value of rapeseed oil in the production of biodiesel. Seed prices in EU fell back below €470/mt after optimistically climbing above €490 - €500 end May.



Beginning June, the Australian Bureau of Agricultural and Resource Economics and Sciences forecasted the Australian crop this year to drop 5% to 5.4Mmt (on reduced acreage); which would be the lowest in four years but still 21% above the last 10- year average.

In Canada, important old crop stocks and favorable weather conditions on the prairies contributed to a somewhat bearish tone, with buyers showing little purchasing interest. With plantings about done, hopes are for a crop above 20Mmt vs. 18.3 in 2023.

Meanwhile in EU, weather-related production risks persist and the month of May did undermine production potential in Ukraine and Western Europe. It seems more and more likely that the 2024 rapeseed harvest will be below 18Mmt or down 10% year-on-year. Seasonal crush downtimes in the end of season period will limit crude oil production and support old crop oil prices in EU.

As about 60% of the EU rapeseed oil production of 10.5Mmt is used for biodiesel production, it will be interesting to see how the EU biodiesel industry will cope with the threat of cheap biomass-based-diesel imports from Argentina, China and possibly the US….

Sunflower seed oil

Sun oil prices appreciated on massive buying by India and by a slowdown in available/exportable Black Sea quantities. And there is some cautiousness and reluctance to sell seed due to weather risk for crop losses in Russia and Ukraine. Dryness in May could have impacted germination and growth of the coming crop. Old crop crush will decline, till the new crop hits the market, which will be supportive to oil prices.

Linseed oil

Late May the EU Council adopted a regulation that increases duties on a wide range of agricultural products, including grains, oilseeds, vegetable oils, UCOs and oilseed meals and derived products, from Russia and Belarus in a way that, in practice, stops imports of these products. The measures will enter into force on July 1, 2024.

For linseed an exception was made: import duties will gradually increase from 10% in the second half of this year to 20% in 2025 and to 50% from January 1st 2026 onwards. Prices of linseed products have already been on the rise. Higher linseed oil prices are expected to kill some demand and might be (partly)replaced by weakening fish oil and rapeseed oil (as omega-3 source).

Butter

Since the beginning of the year, butter prices increased, supported by strong demand. In week 22 the average European price was €623/100kg or 5% more than a month earlier. Dutch prices increased from €648/100kg in week 21 to €678 in week 23.

Biofuels

In 2023, 1.8Mmt, more than 90% of all Chinese biodiesel exports, flowed into EU. As Chinese imports continue, the EBB is demanding firm action against the Chinese government's alleged strategy to destroy EU's industrial base in renewable energy. In 2023 EU-27 produced 15.4Mmt of biomass-based-diesel.

In a recent letter, on the dumping of Chinese biodiesel on the EU market, to representatives of the European Commission, the European Biodiesel Board (EBB) requested the “immediate registration of imports from China until the imposition of severe provisional duties, permitted by anti-dumping regulations”.

Money

Two years ago, the European Central Bank started raising policy rates to curb inflation. The situation improved and while some prices are still rising, especially in the services sector, inflation declined overall and is on track to reach the ECB’s 2% target next year.

As of June 12, the ECB lowered interest rates, for the first time in almost five years, by a quarter percent to 3.75% for the interest that banks receive on their deposits with the ECB. The interest that banks pay when they borrow money from the ECB for a week is now 4.25%. This means it is now a bit cheaper for consumers and companies to borrow, which should be supportive to the economy.

If the interest rate difference with the dollar doesn’t grow too much and if the EU economy benefits from the interest rate cut, the value of the EURO compared to the USD may remain more or less stable, but it can’t be ruled out that more money will flow to the higher-yielding dollar.

Brent - Petroleum

The intention to extend the voluntary production cuts of 2.2 million barrels/day until end September was announced at the June 2nd OPEC+ meeting. But these cuts will be phased out on a monthly basis beginning October and through the first three quarters of 2025. Production increases may be reviewed depending on market conditions but prices still fell significantly. Later, the market rebounded on the ECB's decision to cut interest rates, raising hopes that the Federal Reserve in the US would follow suit and boost the economy and demand for petroleum. But, despite the immediate supportive effect on market sentiment, rate cuts come in a context of slowing economies, which negatively impact petroleum demand…