Your biweekly update on edible oils & fats by Aveno.

Bi weekly dd September 16th 2024.

EUDR

Last year the European Parlement and member-states approved the European Union Deforestation Regulation (EUDR), aiming to ban the production, processing, and sale of products linked to deforestation as from January 1, 2025. Targeted products are beef, cocoa, coffee, palm oil, soybeans, rubber, wood, and all their derivatives. This also applies to products like beef, timber, and soy produced within EU.

Malaysia, Indonesia, the US, Sweden, and others including EU member states, and now last week Brazil have all uttered discomfort and asked for postponement of the regulation's entry into force. Brazil, a major supplier of these products to EU, is particularly affected, with over a third of its exports hit by the legislation. As criticism mounts inside and outside of EU, the German Chancellery too asked to suspend the new regulation, agreeing it will have unpredictable negative consequences for global commodity markets.

The European Commission, facing increased internal and external criticism for its lack of communication and delay in providing guidance on implementing the regulation and thus creating uncertainty for businesses that will need to ensure deforestation-free supply chains, repeated it will respond "in due time".

This most unpleasant situation adds to uncertainty about availability and price of a whole range of products on supermarket shelves next year. Time will tell how hot the soup will be served and at what price and how hot it will be eaten. Or if there will be no soup at all.

Markets

PALM OIL

The Malaysian Palm Oil Board (MPOB) confirmed a slowdown in Indian demand last month, with Malaysian exports estimated at only 1.53 Mt or a contraction of 160 kt over one month. This and low soybean oil prices weighed on sentiment. But apparently exports for the first half of September increased by 9% mainly due to activity from Indian importers anticipating a potential import duty rise. Following lower exports in August and increasing end of month stocks (still about 11% lower than last year!), palm oil futures trended down. But things can change fast from one week or month to the other. One thing of concern is also the lagging and poor Indonesian production numbers.

Fundamentally more important to watch, on the longer term, in the ongoing rebalancing of the global supply-and-demand environment is that palm keeps developing strength on its own and that it is today less obvious that palm oil at all times will be the cheapest oil. There is no law of nature to substantiate that. A rising global demand for all oils and fats and a rising production of e.g. soy and sun during the last years forced the latter to lower prices in order to buy market share and replace for instance palm oil in some markets. From a premium oil sun went, at times, to a discounted oil.

The situation might become more tense if palm oil production has peaked and no longer follows increasing global oil demand; this without the market fully realizing it. This situation may sneak in with plantations not replacing older trees soon enough, or due to climate change related weather extremes, less acreage expansion due to less deforestation, less investments in fertilizer applications, etc.

Today a late production peak is still in the cards and could still create tremendous downward pressure on palm and other oils. But there are no guarantees. Place your bets!

Soybean oil

The last WASDE report of September 12th had a slight friendly touch for the soybean complex in the sense that it didn’t get worse or didn’t add anything bearish to an already big crop in the make. The USDA left the yield unchanged at 53.2 bushels/acre where some optimists were thinking of 55 bushels/acre as average for the US crop this year. Although the weekly Commitment of Traders report (cl Sept. 10) revealed the funds decreased their net short with 23,495 contracts it may be too early to say we’ve seen the low in soybeans. Harvest is well underway for some and fast approaching for others while heat and dry weather facilitate a rapid dry down, meaning that harvest of both record corn and soybean crops will be coming in fast and force farmers to sell their crops quickly if they are short ‘on-farm-storage-facilities’.

Lower prices for beans and a weaker dollar have clearly boosted exports of soybeans out of the US and lower prices for oil noticeably enhanced the use of soybean oil for biofuel production in the US. Last Friday NOV24 bean futures closed at$10.06/bushel and OCT24 oil at $0.3953/pound.

The market is slowly shifting its focus on yield reports coming from US fields and on weather in during harvest and more specifically weather in South America at the beginning of the planting season there where dryness has the potential of becoming a bullish issue.

Argentina is back with large exports of the most competitive oil on the global market, pressuring prices of competing oils.

According to the USDA’s Foreign Agricultural Service, China is set to crush more oilseeds in 2024-25 on a demand rise for protein meals from the animal feed industry which saw overall feed consumption in 2023 grow 3% vs. 2022. This trend is likely to continue in 2024 and drive total oilseed crush 2Mmt up to 137.3Mmt in the 2024-25 season. Soybean meal is about 75% and rapeseed meal about 13% of the total (102.7Mmt) meal use, which leads to a forecasted soybean crush of 99Mmt vs. 97.5 in the previous season. A slight increase in vegetable oil demand and bigger use of beans for food purposes also drives up consumption of oilseeds. However, the report noted “economic growth lifting the living standards of consumers is the main driver for overall consumption of vegetable oils”. But the way petroleum prices are going, amongst other things, leaves one wondering about the Chinese economy and domestic consumption.

Rapeseed oil

Rapeseed price evolution remained volatile and uncertain due the uncertain impact of the Chinese anti-dumping investigation on Canadian rapeseed (in response to anti-dumping measures for electric cars) and due to the drop in petroleum and consequently gasoil prices, dragging down biodiesel business sentiment.

China's anti-dumping investigation into Canadian rapeseed led to speculation about a possible change in trade flows: more Canadian seed may come to EU instead of going to China, which could pressure prices in EU. On top StatCan rated Canada's rapeseed stocks end July at 3.1Mmt or one million more compared to last year. New crop supplies are growing as the harvest progresses and the Canadian marketing of the crop also started at a record pace. In EU last Friday NOV24 rapeseed futures settled at € 456.50/t. End 2022 we were at €600/t.

In the end, if China needs and wants to buy seed, oil and meal, it will do so one way or the other. From EU, from Russia, from Australia. It will have to come from somewhere and the global supply and demand fundamentals will not change much. Other rapeseed importers like Mexico and Japan will adapt to the new reality. “It has to come from the length or the width” said David always. And then the whole issue becomes quite neutral.

Sunflower seed oil

Last Wednesday in the Black Sea, a Greek bulk carrier with grain bound for Egypt, was hit by a cruise missile fired from a Russian plane, hours after leaving the port of Chornomorsk in Ukraine. With a damaged deck, the ship headed for Romanian territorial waters and anchored off the coast of Constanta. Russian attacks, targeting infrastructure on Zmiinyi island (Snake Island) and nearby offshore platforms intensified recently. The used missiles typically lock on to radio or radar signals near the target but when none are present or off, they tend to lock on to the next significant signature, which could be a passing (civilian) ship. This first confirmed attack on a merchant ship in the Black Sea since last November reminded the market of the ongoing threats to civilian shipping whereby risk, sea freight cost and insurance cost only go up.

Overall, crop losses in production areas will leave less seed and oil available for exports on the global market. And due to current dryness in Argentina planting progress is very slow. But sun oil prices were pressured somewhat from spillover weakness from other oils and a weakening global economy while the market is still awaiting the outcome of the ongoing EU harvest.

India has been an active buyer ahead of an expected higher import duty (to support internal seed and oil prices and protect farmers).

Fish oil

The supply of fish oil in Peru improved drastically and brought down prices considerably.

Olive oil

Increased concerns on production in Italy, some parts of Spain and Northern Africa, due to drought, tempered the joy at the prospect of a production recovery in Spain and gave renewed support to prices.