Your biweekly update on edible oils & fats by Aveno.

The market is closely monitoring the demand evolution from the world’s largest importer of edible oils and fats: India, the world’s most populous country, 5th economy in the world and 3rd petroleum importer after the US. India’s annual edible oil consumption growth has been above 5%. Total consumption grew from 20.7Mmt in 2020 to 25Mmt in the 23/24 season. Population growth, economic growth and, yes! biodiesel are the growth engines for consumption.

India became Russia’s biggest petroleum customer, taking over from China, and India may be slowly taking over the role from China as “biggest buyer” of specific commodities and as an important developing economic (f)actor.

Palm Oil

Concerns over tight supplies and expectations of rising demand fired up price optimism of Malaysian exporters when the world's largest producer and exporter of palm oil, Indonesia, reported a major drop in inventory on lower production and announced a bold plan for increased biodiesel production. Demand from India also helped. However Malaysian exports in August may turn out 15% lower than July while production is expected to be up by about 5%.

In Indonesia, the government wants to significantly increase biodiesel blending mandates, which would automatically result in lower export volumes. The Republic plans to increase biodiesel blending in January 25 from 35% to 40%, and even accelerate asap to 50%, in an effort to reduce fossil fuel imports and lower fossil fuel emissions. According to the palm oil producers' association, Gapki, B50 would equal a consumption of about 18Mmt of palm oil, 7Mmt more than the estimated 11Mmt currently used for B35 (on a palm oil production of 48Mmt). Some players voiced doubt about the feasibility of the plan because challenging technical problems may arise at production level, during transportation, storage and use of the product… 

Soybean oil

Increased acreage and record yields will result in a record 2024 US soybean crop. Although some weather concerns popped up with critical temperatures in excess of 37°C in several growing states. But the heat wave is to be short-lived, and the forecast for rainfall is reassuring. Most bearish news has probably been priced in and speculation therefore shifted to discussions if and how much the announced crop can shrink….

South America should be starting to sow in their next crop and Brazil has to cope with a water deficit and high temperatures. But Brazil is big and it is very early in the season. Meanwhile Brazil and Argentina want to increase their biodiesel production and consumption, leaving less soy oil to be exported…

Futures in Chicago bounced back up mid-August and many wonder if this is a fundamental trend change or if it was mere technical or end-of month-short covering by the funds. This upward movement of bean and oil prices weakened the soybean complex’ ability in dragging down competing oils which it had been doing earlier.

Discussions and speculations about the use of soybean oil for biofuel production in the US, or about the share of soy oil in the feedstock mix, remain very unclear. There is talk about allegedly fraudulent Chinese feedstock imports, about the (less favorable) carbon intensity of soybean oil, the outcome of the presidential elections and possible resulting policy changes, etc. But one thing is clear: US farmers are not happy with prices and worry about demand while globally there is still more than enough beans and oil for everybody.

Rapeseed oil

Rapeseed prices firmed in a market with reduced supply and on a global surge in vegetable oils prices. An upward turn in the Canadian rapeseed market, the bad sunflower crop expected in Eastern EU and limited supply in Western EU gave also support, while palm oil embarked on a bullish train mid-August.

Theoretically or fundamentally the (seed and oil) market could or should be on fire in EU due to the lousy EU rapeseed crop and problems in Canada, Ukraine and India. But it is not. That is because demand is in balance with supply. The market structure even turned into a carry as heavy stocks weigh on nearby positions. There is a big inventory to “carry” forward. Of course, seed prices reacted to other firming markets but are still relatively low. Medium term, prices are likely to rise further as seed production is lower than last year and it is expected that global demand for all oils and fats continues to grow.

Food demand in EU is quite inelastic and much of the industry is already quite well covered, even months ahead. But last year as much as 62% of total European rapeseed oil consumption (10.24Mmt) was not for food but for energy purposes. This year it should be more or less the same but because biodiesel production margins remain stressed, demand went in slow motion.

The reason is that the market is saturated with so called “Green House Gas Tickets” (certificates to prove GHG reduction compliance which can be bought from suppliers of low carbon fuels) making them nearly worthless and thus undermining profitability of biofuel production. Anti-dumping duties to curb certain imports are now in place but it may take some time before this has effect. On the other hand, policy adjustments (e.g. higher GHG reduction targets) are also possible. Anything which might surprise is possible. It is tight and the, real tangible, weakness might be temporary.

Sunflower seed oil

The last JRC MARS Crop Monitoring report revised downwards yield forecasts for almost all European crops. This is due to exceptionally warm conditions in the south and excessive rainfall in the north. The downward revision of the yield forecast for summer crops such as sunflowers is mainly due to exceptionally high temperatures in southern, south-central and eastern Europe. The impact on yields is particularly large where heat coincided with dryness like in Hungary, Romania, Bulgaria and Greece.

In Ukraine and Romania but also in Russia, the lack of rain is a major concern, with the drought stressing the crops. In France too, conditions are not ideal (-10% yield vs 2023). In this context farmers are not selling seed and crush margins get worse and may result in less crush = less oil production.

Global crop estimates are down but, in the end, a very big chunk of the globally produced +- 23Mmt of sun oil will compete on the global market with palm oil (e.g. into India), which in itself puts a lid on price anticipations; al lot depends then on where other oil prices go.

Besides importing seed, EU-27 imports about 1.5Mmt of oil/year on a total consumption of 5.53Mmt sun oil. Most buyers seem to sideline and want to await the outcome of the harvest; a bigger acreage may still soften some yield losses.

Butter

Global demand for butter has been outpacing supply and buyers kept bidding up the market by only buying their short-term needs of cream and butter and sweating it out, not giving in to panic, until a hoped correction kicks in on improved milk supply.

EU butter production is well behind last year as milk processors preferred producing cheese and whey over butter and skimmed milk powder. Cheese prices remained relatively stable, while butter prices got on a strengthened upward trend. In EU, butter prices were on the rise since end 2023 and now reached record-breaking levels exceeding €8,000/mt for the first time while cream prices even reached €10,000.

Disappointing milk production levels due to the lower quality of roughage caused by a wet spring, which also seems to depress the fat content in milk, and the impact of the bluetongue epidemic in several member states added to the problem. Some farms experiencing the disease have seen a reduction of milk production by 5 to 10%. All this combined created a very bullish picture. Higher prices will curb demand. But when? And by how much?

Animal fats

To many observers’ great surprise, animal fats are again attractively priced vs. competing oils, like palm, for the oleo chemical industry in EU, which can now more easily compete against palm-based products. The reason behind the animal fat price drop is the poor demand from EU biodiesel producers, since many months already. Opportunities change and one must be ready to act at all time to seize them. It can also not be excluded that biodiesel producers elsewhere in the world, e.g. US, Singapore, pay more for this feedstock in the future, but that is then.

Petroleum.

Since 2022, the OPEC+ cartel tried to boost prices by limiting production. This only partially worked, due to weak global economies and higher production by other petroleum-producing countries. Recently OPEC+ confirmed its intention to gradually reduce the production cuts from October onwards in spite of the recent Libyan production stop and extra production cuts by some members to avoid overproduction.

Notwithstanding geopolitical tensions, so far this year, petroleum prices stayed under $90/barrel on weak demand from China, the world’s largest importer of petroleum, and EU (the 2nd importer), offsetting the bullish impact of supply limitations. For Brent, an average of $83/barrel was paid this year, and major US banks Goldman Sachs and Morgan Stanley expect this to drop below $80 next year due to an oversupply (vs. a weak global economy) … Lower interest rates could however provide additional oxygen to the US economy, which may lead to higher petroleum consumption. The spread between gasoil and crude vegetable oils remains considerable.