The coherence of complex issues.

"A complex system is a system composed of many components that interact with one another. Examples are Earth's global climate, organisms, the human brain, infrastructure such .../…" and the global vegetable and animal oils and fats market. 

The world of oils and fats is one of constant interaction, of which we are a part and the many global events that together weave a web of interactions, form our challenging reality. Often very few seem to have a complete overview or a beginning of a correct answer or solution to seemingly individually simple problems.

The present problem of a global oversupply of soybean meal leads to lower feed cost for farmers which may lead to lower milk prices and then to more production and lower butter prices. "Green deal regulations" in EU leading to herd size reductions and the Mercosur trade deal, involving South American meat producing countries, may lead to even less animals, and less slaughter and consequently less animal fat production in EU. But probably lots more in South America as global meat consumption is expected to continue growing. 

Biofuel policies around the world have contributed to growing more crops. Crops often grown to just satisfy biofuel demand. About 60% of the produced rapeseed oil in EU goes to biodiesel. Also, most corn is used to make ethanol, a biofuel added to gasoline. The growth of ethanol production also led to more of the byproduct called "distillers' grain" (also called DDGS), rich in energy, proteins and minerals and mostly sold as a high protein feed for cattle, pigs, poultry, sheep and fish because of its high nutritional value. And as such, more byproducts for animal feed compete with grain and oilseed meals. This also increases the production of corn oil which is a byproduct of "corn milling" and a lot of this corn oil is being used to produce biodiesel, which then, in the US, competes with soybean oil, and leaves less corn oil for export.

Eventually, markets and prices adapt, forming a new reality, by making it simple and fundamental e.g. by analyzing the total global "protein supply and demand" for animal feed and the specifications like amino acid profile, from genetically modified organisms or not, etc.

But it takes a while to sink in. 

Without even mentioning geopolitics and weather, in a constantly changing and adapting world, where too many policymakers ignore the interactions and consequences of their (often well-intentioned) actions or negligence, it remains difficult to anticipate price trends. Yet purchasing managers are constantly expected to make a judgment call….

In the past week, news about the European Commission's proposal to delay its anti-deforestation law for a second time and news about Argentina temporarily suspending its export tax on agricultural products in order to support its falling currency, took everyone by surprise and weighed heavily on oil markets. Fundamentally not much changed. There is the same number of soybeans and palm oil in the world as before. But the price action was worthwhile. Some won, some lost. American farmers lost a lot. Some palm oil traders too.

Meanwhile container freight rates continued falling. Drewry's World Container Index (WCI) dropped 8% last week, marking the fifteenth consecutive weekly decline, indicating a fairly weak global economic environment, especially as the Golden Week factory shutdown period has not yet even begun. (China's eight-day break to commemorate the founding of the People's Republic on 1 October 1st, 1949 and to celebrate Mid-Autumn starting Oct. 1st). 

And although there are many reasons for bearishness, petroleum prices rose last week on geopolitical tensions. In an attempt to end the war in Ukraine, the US is urging countries (eventually via indirect sanctions) to halt their Russian crude purchases. The US asked NATO member Turkey to stop purchasing oil from Russia and would ask Hungary the same. Russian violations of NATO airspace are increasing tensions, while Ukraine is intensifying its attacks on Russian refineries and other petroleum infrastructure, limiting Russian exports.

Corn Oil

Traditionally, corn oil for food has always been a byproduct from the milling of corn for production of starches and glucose. But the (dry or wet) corn milling process is also used to ferment starch to ethanol (as biofuel). Corn oil is pressed and/or solvent extracted from the corn germs which are separated in the milling process. For different reasons not all mills produce "corn germ oil" but to increase profitability a focus on revenue from the byproducts is essential. For instance, CO2 or carbon dioxide, formed when producing ethanol, can be captured and used for food or other purposes or just released in the air.

Corn oil from ethanol production suffers from the harsh process and is therefore less suited for food application; although a part is known to be used in food and feed applications but this adds complexity and costs, requires extra processing, procedures, monitoring of undesired contaminants, certifications for food safety, etc. Besides food, (refined)corn oil is also used in cosmetics, pharma, chemicals, animal feed, and biodiesel production.

In 2015, known world production of corn oil was just below 3Mmt. It later grew to stabilize a while around 4Mmt and today production is nearing 5Mmt. The growth is mostly due to increased production of ethanol as biofuel. This is small compared to 84Mmt for palm and 68Mmt for soybean oil but it is way above olive and coconut oil production. Global production of corn last season was 1.23 billion metric ton of which 31% was produced in the US, 24% in China, 11% in Brazil and 5% in EU. And this year's crop looks set for a new record. If the US biofuel policy supports US farmers, production and domestic consumption of ethanol will grow and so will the production of corn oil. 

In Brazil, which has been a major ethanol producer and user for its automotive fleet since long before there was talk of climate change, and often based on cane sugar, corn is also used as feedstock.

Global trade in corn oil is only about 600,000 mt and while China and Brazil are emerging as global market suppliers, the US is withdrawing, as more of its corn oil, a domestic raw material and low carbon intensity by-product, is being used for domestic biodiesel production and as such replaces soybean or other oils.

Biodiesel

Although in EU-27, "double counting raw materials" are no longer accepted, meaning more biodiesel will have to be produced to meet greenhouse gas emission reduction targets, global production of biodiesel declined. For the first time, global production of bio-based biodiesel declined, not only because of Donald Trump, but also thanks to him. Indonesian and Brazilian production kept growing and it is expected that in 2026 the US production will grow again substantially; that is if a "US Ag-supporting" biofuel policy is finalized and implemented.

Global biodiesel production, which may be around 65Mmt next year, must be put into perspective with the total global production of vegetable and animal oils and fats, forecasted to reach about 271Mmt. It should be noted, however, that nearly 8.5Mmt of "used cooking oil/waste of oils and fats" were also used this year for global biodiesel production. In EU-27, this amounts to about 3.5Mmt.

Palm oil

The big news, last week, was that the EUDR, Europe's anti-deforestation law, might be delayed for a second time but this proposal still needs to be voted in parliament and by the Council (of individual member-states). Some costly stock building ahead of the implementation has been done in EU and that can mean less imports in the coming months while EU demand for biodiesel production is expected to further decline.

As to reasons why EUDR is postponed, the EU is finalizing several trade deals with the US, Indonesia, Mercosur…. and must beware not to put up "trade barriers like the US" which could undermine those trade agreements. US negotiators have already alluded to that, so has Brazil. And in 2026 the EU has the rollout of the CABM, the Carbon Border Adjustment Mechanism (on production of carbon-intensive goods) for which non-compliance can lead to penalties and import restrictions... So, it's most likely not yet the end of trade deal discussions.

There is not much pressure from other oils as for instance the harvest push from sunflower seed oil production is not yet felt. And soybean crushing is limited by the challenge of soybean meal disposal. Although the market structure indicates 'there is enough stock to carry'; a lot will depend on evolution of exports and a possible supply push from Indonesia. Last Thursday, soybean oil Fob Argentina was at par with Malaysian RBD palm olein Fob Malay but Brazil was $40 more expensive. Palm prices are unlikely to collapse for the moment.

Soybean oil

As harvest picks up in the US, the soybean complex remains under major pressure. With China absent from the sales book, the US will be storing large quantities of beans. Even though at lot of global buyers have been switching to cheaper US beans, the crop lacks the market demand expected at planting because of the Trump Administration's policies. Recent talks between Trump and Xi were disappointing and total bean exports are now expected to fall to an historical low of 40Mmt instead of the 52.5 average of the last four years.

In South America plantings are progressing and soybean acreage is expanding. But the biggest bearish news last week came from Argentina last Monday when it announced suspending its export tax on certain agricultural products in an effort to generate dollar income to pay off dollar-debt and support the falling peso. The goal was to cash $7 billion before the end of October and it took only 3 days to reach that goal. So, the suspension was revoked and Argentina is flooded with dollars as buyers had to pay up within 3 days.

The victory of the progressive coalition in the legislative and municipal elections in the province of Buenos Aires, early September, shook up the political landscape and although the peso was already struggling before the elections, the result caused panic. It seems that financial markets fear that a return to power by the opposition would bring back financial mismanagement and chronic hyperinflation, undoing the achievements of President Milei's efforts. On October 26th, midterm national elections will partly renew the members of the upper and lower houses of Congress. This will be a test for Milei, so he/Argentina is not out of the woods yet. The Trump administration also gave a $20 billion economic aid package to Argentina….

Meanwhile Argentina has reportedly sold 5.1Mmt of soybeans, 1.5Mmt of soybean oil and 7.1Mmt of soybean meal. Most of this to be shipped over the last quarter of the year and smaller lots in April/May/June 26. China allegedly bought a lot and reports go up to 35 panamax size ships full of beans (65.000mt), and still nothing in the US.

Rapeseed oil

Sunflower seed oil

Tightness during the transition from the old to the new season persists. The harvest progresses but harvest pressure is still far away especially as seed and oil inventories were very low at the end of the old season. The nearby remains supported and the market trades in an inverse while sunflower seed oil retains its premium over rival oils. Black Sea oil however returned to a discount of $100 under the EU-six-ports market. In Argentina plantings progress well and the planted area is expected to increase by about 17% over last year to a record 2.6Mha. The total seed supply this season is disappointing versus earlier expectations but overall supply is still an improvement vs. past season and (so far) on paper doesn't look too dramatic.

Butter

Butter production and stocks keep rising, while industrial users appear to have already covered their needs for this year. This results in weak demand, while retail and catering sales remain sluggish due to consumer penny-pinching. In addition, the EU faces strong competition from the US (weak dollar) on global markets. And this year, with a strong euro, the EU is seen importing record quantities of butter (mostly for industrial use).

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