Change of heart?
Or still in the dark?
A lot happened and a lot didn’t happen in the last two weeks. Enough food for bulls and for bears. Enough to further feed volatility. Lots of opposing and contradictory news still floats over the market and even though things seem to be moving, no underlying problems have yet been resolved. Just to name a few: the US trade and US budget deficits, US biofuel policy, the war in Ukraine….
Last Monday, the US and China agreed to drastically reduce tariffs on each other's products for an initial period of 90 days: the US will lower its overall tariffs on Chinese products from 145% to 30%, and China will reduce its taxes on US imports from 125% to 10%.
We also saw some “geopolitical cooling” and a huge relief in all markets in response to all the news. A euphoric trend swept up container shipping rates, pushed palm oil and soybeans upwards, propelled petroleum prices, strengthened the US dollar and most of all lifted equity markets.
There was a lot of emotion as markets are usually more driven by sentiment and anticipation than anything else. Early April the world reacted as if it was the end of it and now as if all problems have dissipated because the escalation in the tariff wars may have been stopped. But import duties are still very high and there are no final (?) tariffs agreed with most countries (China, EU, India, Japan, South Korea, etc.). Not everything is clear on which tariffs are valid for which goods now and for how long… the matter remains complex and unresolved! While the Trump Administration, is talking about trade deals there are little or no signed contracts.
A bearish undertone.
A general bearish tone in global agricultural markets, especially grain and oilseeds, stems from a lack of progress on tariffs and trade deals, speculation on the blending mandates for biofuels in the US, and expected production increases (e.g. soybeans, sunflower seed, rapeseed, palm oil) for the new crops.At this stage, weather conditions remain generally favorable, and rising global production and inventories are weighing on prices in a market facing slowing demand due to a global gloomy economic environment and expectations of lower demand from the biofuel sector, particularly in the US.
However, dry weather in northern EU could negatively impact yields if it persists. In most of EU's major growing regions, a soil moisture deficit has been developing since the beginning of March. Broadly speaking, it’s too dry in the north and very wet in the south. The Canadian prairies are also too dry to be good and Russia and Ukraine can also use some rain.
The situation varies considerably depending on the area. And for some if it doesn't rain well, soon enough, or at least regularly until harvest time, the pipeline could hold be some unpleasant surprises. Any backfall in rape and sun could still offset the rise in palm oil production. Something we can miss like a toothache.
Palm Oil
Malaysian Palm Oil Board data from May 10th clearly shows the much-improved production and stocks situation and some market watchers expect palm oil stocks to go over 2Mmt by the end of May on continued strong production.
The Solvent Extractors' Association of India reported that in April India’s palm oil imports dropped 24.29% from March to 321,446 mt. And for the first half of the 24/25 marketing year, palm oil as a share of total imports, dropped from 60% to 40%. This leaves room to replenish stocks with the cheapest oil available and India did already show buying interest for palm.
Depending on evolution of stock building in origins and strong interests for physical oil, from China, India, Bangladesh, Middle East Countries and perhaps more, upward price ticks are not to be excluded on the short to mid-term, as most cheap alternatives are off the market till the new crops kick in (e.g. sunflower seed oil).
Soybean oil
The soybean complex had a quite volatile two weeks on diverging and flip-flopping news input. Optimism had been fueled by hopes for higher biofuel mandate announcements and easing US-China trade tensions, but sentiment quickly reversed when biofuel policy uncertainty resurfaced. Bean futures had a big melt down on Thursday after soybean oil futures went limit down on all positions on an unconfirmed rumor of lower Renewable Volume Obligations (RVO) for biomass-based diesel in the proposal by the Environmental Protection Agency (EPA). Allegedly the draft proposal on the RVO for biomass-based diesel was sent to the Office of Management and Budget with much lower volumes than proposed earlier to the EPA by a “joint petroleum and biofuel industry group” upon D. Trump’s request.
With follow-through selling last Friday May 16th, in Chicago, Soybean Oil Jul '25 Futures closed at $ 0.4893/lbs. while Soybean Jul '25 Futures closed at $10.50/bushel.
A couple of other things may have added to the sell off. A neutral USDA report (WASDE) last Monday showing an upward revision of global stocks and global soybean harvests to increase again.
Then the US weather with rains falling in dry areas of the Western Corn Belt, and more in the forecast, which is beneficial for planting and early crop development. The USDA's Crop Progress report indicated that 48% of the soybean crop was planted as of May 11th, well above the 5-year average.
Also, several upward revisions by different analysts of the most recent South American production weighed on sentiment: in Brazil, Conab raised production estimates for their soybean crop by 470,000 mt to 168.34Mmt. And Argentina’s harvest (in progress) was also revised upwards to even 50Mmt again!
Rapeseed oil
On old crop the game is over and non gm seeds and oil are getting extremely scarce and expensive. There is still ample supply of GM-rapeseed-oil and little interest from biodiesel producers as they favor using soybean oil if their condition allows it (legally and technically). The MJJ is also the traditional period for processors to take their annual maintenance downtime and get ready for the new crop which normally starts in August in EU.This year's rapeseed harvest in EU looks set to be a lot bigger than last year. However, with current dryness more concerns pop up if this will negatively affect the yields. In Canada planting is ongoing in too dry conditions but more favorable weather conditions are forecast on the Canadian prairies.
The global outlook for rapeseed production in the next season looks promising (weather permitting) and is expected to grow substantially. However, Canada and EU will end this year with unusual low carry out stocks and thus limit total supply for next season, making it vulnerable for the slightest hick up! Strength from a low carry out may also spill over into the new season and depending of the pace and size of the harvest this can be played out till end September!
Sunflower seed oil
With the end of the season nearing and relatively low stocks of seed and oil, prices stayed firm without seeing too much buying interest. And then there’s the outlook for a record crop coming (weather permitting) which should drive new crop prices to their lowest in order to buy enough global market share. Meanwhile prices fluctuated following rival oils up or down.
There is little activity but India has been sniffing around for Black Sea oil as well as for Argentinian oil after lower imports of sunflower oil in April.
This year in France, sunflower cultivation, on an area estimated at 0.67Mha in France, would be down by almost 11% over one year and down by 14% compared to the average for the period 2020-2024. But counting on excellent weather, the crop is expected to be bigger than last year’s drought affected crop, which should bring down the hi-oleic premium over classic sun oil back to normal levels.
Petroleum
Last week petroleum prices surged on the back of easing trade tensions between the US and China, but this was somewhat offset by expectations of an increased supply from Iran and OPEC+. Gains were also limited by the appreciation of the dollar and geopolitical cooling.A continued escalation of tariff wars would normally lead to a decline in world trade and the economy, and reduce demand for energy. The combined effect of tariff fears and a surprise OPEC+ announcement on production had already fueled fears of a global supply glut. (OPEC+ will increase production for the second consecutive month, increasing output by 411,000 b/d in June / part of a larger plan to reverse an earlier 2.2 million b/d production cut).
D. Trump also announced real progress in the US-Iran nuclear deal negotiations, but the latter expressed less positive conclusions. Time will tell.
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