A focus on weather

Global geopolitical tensions continue to escalate, with a changing world order, fierce economic wars, problems in the Middle East, and the ongoing war in Ukraine.

As May drew to a close, overall economic market sentiment was further affected by growing fears about rising US public debt and a resurgence in trade tensions. Despite the weakening dollar, soybean prices, among others, moved in negative territory and ended in the red while the entire oilseed complex slowed further on weakening gasoil prices.

The tariff soap opera

Difficult trade negotiations with EU had prompted Donald Trump to impose a 50% increase in US tariffs on European goods, which was, however, rapidly withdrawn after a phone call with the President of the European Commission.

Also on the trade war front, a US federal court blocked the harsh tariffs, ruling that the emergency law invoked by the White House doesn’t grant the president unilateral authority to impose tariffs on all countries. The court also blocked separate tariffs imposed on China, Mexico, and Canada. The Trump administration immediately appealed and the next day, an appeals court overturned the trade court's decision and temporarily reinstated the tariffs imposed by President Trump... until further notice.

Uncertainty and chaos continue to undermine investor and business confidence. US importers now face not only the risks associated with tariff changes, but also doubts about their enforceability. Moreover, the tariffs paid in recent weeks could be claimed back if they are ultimately declared illegal.

The increase in import tariffs should in principle also generate more revenue for the treasury and offset tax cuts. The US hasn’t yet passed the budget bill, which provides for a significant tax cut that would only increase the budget deficit. But if President Trump's “One Big Beautiful Bill” becomes law, the soybean industry may also benefit from tax breaks for the production of vegetable aviation fuel! (The bill passed the House and still needs to be approved by the Senate, and then return to the House if they make any changes, which is likely)

In addition to the ongoing tariff soap full of twists and turns, unforeseen events and cliffhangers that complicate compliance for importers, facing a patchwork of trade restrictions, the global weather situation attracted particular attention.

Weather concerns / weather markets

Although the weather remained generally positive for global agricultural production, some concerns emerged. Spring was marked by a severe lack of rainfall in northwestern EU, where it was one of the driest on record, raising concerns about harvests. In contrast, Spain, Portugal, Italy, and Greece benefited from abundant rains. Recently, favorable dry weather has returned to the Iberian Peninsula, while much-needed showers have improved soil moisture in Northern EU. Adequate rainfall also eased concerns about Bulgaria and Romania and enthusiasm about rapeseed prices supported by a more animated Canadian market, was quickly extinguished by the recent rainfall in Northern EU.

In Eastern Europe, excessive rainfall is now causing concern, particularly in Romania and Ukraine. Southern Russia has also been hit by excessively frequent downpours, and weather forecasts continue to predict a very wet period, although other parts of Russia are still suffering from a lack of rain.

There is also talk of an early-summer heatwave with record-breaking temperatures across EU peaking mid-June. The south would see temperatures above 40°C and Central EU temperatures into the high 30s, putting considerable stress on agriculture. For the coming week however, at Aveno, the iPhone weather forecast is less alarming. But, who would you bet his paycheck on a weather forecast for tomorrow?

In Canada, persistently cool weather, escorted by occasional showers, has slowed the previously rapid pace of spring plantings. However, precipitation remains insufficient overall, and forecasts continue to predict concentrated and light rainfall.

Australia too experienced extreme conditions, with floods and locally historic rainfall in parts of eastern Australia, as well as drought in the southern growing regions. In Argentina, the current soybean harvest has been delayed by heavy rains and flooding. Normally, 90% of the crop would be off the field, but today only about 80% is in storage. The extent of quality damage or crop losses is still unknown.

In the US, weather varies by region. Mid-May, farmers in Illinois were hit by a severe dust storm (dry loose soil and wind) and saw a significant layer of topsoil blown away. Many corn and soybean growers are not only facing damaged or destroyed crops, but will also have to reapply fertilizers and herbicides. Other states, including Indiana, Kansas, Missouri, New Mexico, and Texas, experienced similar problems earlier this year.

And while the long-awaited and needed rainfall is still beneficial, in some places it is excessive. Last week's excessive rainfall (storm Alvin) in Texas, Louisiana, Arkansas, Mississippi, Tennessee, and Alabama is a cause for concern, as widespread rain and (flash)floods are disrupting (delaying, preventing, or damaging crops) the planting season. In the mid-south, where persistent rains cause damage and prevent planting, farmers undergo their wettest spring in 133 years.

As the year goes on, markets will undoubtedly get caught in the traditional summer 'weather markets', leading to nervousness and volatility as the balance between supply and demand for edible animal and vegetable oils and fats remains fragile.

Palm Oil

Last Friday, “August ’25 crude palm oil futures” fell 54 points to MYR 3,878/mt, ending a five-session rally. The drop followed weakness in competing edible oils. Weak sentiment was also fueled by concerns that China's economic stimulus measures do not appear to be doing much good. Price evolution showed three consecutive months of decline with prices nearing their lowest level in several months, which reflects rising stocks and production in Malaysia and Indonesia. Malaysian exports improved and cargo surveyors estimated that exports increased between 7 and 12% in the first 25 days of May. Demand from India, the world's largest palm oil consumer and the world’s biggest edible oil importer, is recovering as falling prices make palm cheaper than soybean oil and buyers replenish stocks.

Soybean oil

The market ’s been weighed down by a contraction in the vegetable oil market, with soybean oil futures particularly falling to their lowest level since mid-April, on persisting uncertainties regarding the continuation of the biodiesel support policy in the US. In Chicago, last Friday, “Soybean Oil Jul '25 Futures” closed at $0.4689/lbs. while “Soybean Jul '25 Futures” closed at $10.41/bushel.

Trade tensions also supported the bearish feeling. According to the USDA 76% of the projected soybean acreage was planted by May 25th which was 8% ahead of the 5-year average. And 50% of the acreage had emerged by May 25thwhich is 10% better than average.

The soybean complex is evolving on a hesitant note, slowed by reports of rapid planting progress in the US and massive harvests in South America. However, floodings reported in Argentina in recent days gave some firmness to bean prices. The diversity of weather conditions across the US may become a source of both concern and comfort.

There were also reports of biodiesel plant closures in the US on poor demand and lack of profitability. Although a distinction must be made between traditional ‘soy methyl esters’ and more advanced HVO plants. But both face harsh times.

Rapeseed oil

Rapeseed prices seem to be stabilizing, despite significant weather risks in Canada and Australia, and concerns about production in Ukraine (late frosts that destroyed rapeseed flowers, followed by excessively dry weather hindering pod filling). Overall, global production is expected to be slightly less optimistic than it was a few weeks ago.

In EU, recent beneficial rainfall should help limit potential losses caused by moisture deficit stress seen since early spring. Although, rising temperatures and upcoming storms may be cause for concern.

In Canada, relatively dry conditions allowed earlier than usual plantings at a record pace. The arrival of rain in the prairies should promote the development of the crop and growing conditions are reportedly more reassuring. But prices are holding steady because the (forecast)rain on the prairies remains too limited to compensate for the severe water deficit that has developed and thus risks hindering the proper development of the crop. Planting is not fully done yet and at the same time, exports remain particularly strong, suggesting an increasingly lower carryover of stock to next season.

In Australia, arrival of moisture that would help prepare for winter rapeseed planting has proven to be insufficient to reassure local producers.

The EU biodiesel market is sick with reports of low margins, fraud, plant closures and poor demand and lots of Chinese used cooking oil diverted from the US and coming to EU and displacing feedstock demand. All this weighs on oil demand. Difficult to judge how this will evolve for the remainder of the year.

Sunflower seed oil

The positive outlook for a record harvest in August/September continues to depress prices, despite the fact that possible weather hick ups could still shatter the dream. The weakness of competing oils plays a major role, especially as bullishness from lower sun, rapeseed and palm oil production (in the past season) has been partially offset by poor global biodiesel production and the prospects of a production recovery of these rival oils.

Growth of global edible oil consumption, next season, is seen slowing down from roughly 4%/year to maybe just under 0.5% meaning the awaited higher production of sunflower seed oil will have to make a bigger price effort in order to (re)gain global market share. There has been a time when sun oil was the cheapest of all major oils and history has a habit of repeating itself but never guarantees anything.

However, in order to limit (buyers’) over-enthusiasm, it is wise to remember that the low seed and oil inventories at the end of this season mean that the carry-in stocks for next season will be on the low side and may therefore moderate the total supply growth/push. Shorter-term, pent-up demand may also be supportive to prices till the announced production recovery of (rival)oils is fully realized.

Olive oil

Weather conditions in Spain have been favorable for olives. It is still early but all looks set for a record production and growing stocks paired with corresponding prices. Also, elsewhere production prospects look good. An abundant supply and lower prices will undoubtedly reinforce the already observed trend of increasing consumption of olive oil at the expense of other oils, in particular sunflower seed oil.

Petroleum

“Brent crude petroleum July ’25 futures” closed at $63.90/barrel on Friday, a weekly loss of over 1%. On uncertainty over US trade tariffs after an appeals court granted temporary relief to the Trump administration (but revoked a day later), on a possible coming larger OPEC+ output for July continuing a trend of gradually restoring supply after previous cuts (confirmed in Saturday’s OPEC+ meeting), and on escalating US-China trade tensions when D. Trump accused China of violating a recent tariff truce. “August ’25 Futures” even closed lower at $62.80/barrel.

The negative sentiment was also inspired by caution ahead of economic data for May from the world’s biggest importer of petroleum. The market worries about sluggish factory and services activity despite economic support measures from Beijing, while the International Energy Agency spoke of softening demand in China.

∞∞

∞∞

Please reach out to your regular AVENO contact for questions, comments and feedback.