A tactical pause.

The most significant event of the past week was the "some kind of trade agreement" between the US and China. 

On the sidelines of the APEC conference in South Korea, vague agreements were reached, and the negotiating teams from both countries still need to flesh them out and carve out more concrete results.

Much tension has eased in the short term thanks to this agreed "one-year cooling off period". But this trade framework is not legally binding and there are no penalties for non-compliance. Some say, this "one-year truce looks more like a tactical pause than a lasting peace", and think derailment is still possible at any moment.

The agreement is still being finalized and its implementation could prove more complex than expected. Despite China's promise to resume buying US soybeans, China's first major soybean purchases for delivery in December were made in Brazil, as the country was cheaper. A major challenge therefore still awaits the negotiating teams.

In the US, there is a desire for greater clarity on this trade agreement and other trade policy, as well as on the biofuel policy. However, the current "government shutdown" makes it hard to predict how the market will evolve. 

Within the EU, uncertainty remains regarding the implementation of the EUDR regulation, which has already led to higher prices and the withdrawal of sellers from the market, as no one knows what will happen.

Markets

Palm oil

The drop of palm oil prices is mainly due to higher production and for eight months production increased more than demand and has thus been driving inventory buildup. 

India's palm oil demand has been tuned lower by forecasts of increasing rapeseed oil supplies after record plantings this year while weaker economic data from China for October, also weighed on the demand outlook. 

The situation in Indonesia regarding extra demand for biodiesel production remains unclear. The world's largest producer of palm oil did consider new palm oil export restrictions as part of its ambitious plan to expand domestic biodiesel production, to ensure sufficient supply for its upcoming B50 biodiesel mandate. 

To meet the increased demand, authorities are considering several measures, including expanding palm oil plantations and enforcing the Domestic Market Obligation (DMO), which mandates exporters to allocate a portion of their production for local use. Concerns and debate around the funding of the program and timing of the full implementation continued however to create a mist over the future Indonesian palm oil landscape as does the increasing interference of government in the palm oil industry.

Soybean oil

In anticipation of a trade deal, the soybean market started to rally before the announcement of the trade framework with China; and expectations of China moving 12Mmt of soybeans before the end of January added some extra fuel for beans to soar to $11. Now, the market seems overbought in beans and meal, and first needs to see the purchases and have them reflected in the next USDA reports to hold these price levels. Often forgotten, is beans are primarily grown for their protein content and not so much for the oil share (not even 20% in volume). Meat production is the driver. Oil is a, albeit important, byproduct; in value the oil share is much more than 20%. 

As the harvest draws to a close in the US, South American producers are stepping up their sowing efforts and early indications point to another bumper crop in Brazil, with acreage once again up on last year.

In Argentina, the world's leading exporter of soybean oil and meal, the Buenos Aires Grain Exchange announced that farmers had begun sowing soybeans for the 2025/26 season under optimal soil moisture conditions. Current forecasts predict a crop of 48.5Mmt. President Milei's recent victory in the midterm elections guarantees the implementation of planned economic reforms, which should ultimately stabilize the financial system and further curb (hyper)inflation. Among Milei's objectives is a tax reform, including the elimination of export taxes on agricultural products.

Since the beginning of the month, soybean futures have risen to their highest levels since June 2024 in response to some goodwill purchases by China and the announcement by the US of China's commitment to buy US soybeans: 12Mmt during the current export window (November-December) and 25Mmt/year during the next three years.

This provided strong support, although some considered this enthusiasm premature and optimism has since faded, as China, the world's largest soybean importer, has not yet made any substantial purchases from the US and instead bought 20 bean shipments for December in Brazil. This reflects the availability of Brazilian soybeans and could indicate that last year's Brazilian harvest was underestimated by maybe 5Mmt. It also suggests the US is no longer a low-cost producer and Brazil is willing to fight for market share.

China's announcement that it would lift the 15% retaliatory tariffs imposed on US agricultural products as of November 10, still leaves Chinese buyers of US soybeans facing 13% tariffs, making US imports too expensive compared to South American alternatives. 

In the EU, soy products are more expensive due to concerns about the EUDR regulation, and sellers have even withdrawn from the market in the face of ongoing uncertainty about its implementation.

Rapeseed oil

European rapeseed was also pulled down by the poor performance of Canadian rapeseed. Discussions are underway between Canada and China regarding imports, and if an agreement is reached, it could mean the end or a reduction of imports of Canadian GM rapeseed in the EU. But despite warming relations, there is no agreement yet regarding Chinese import tariffs on Canadian rapeseed, oil, and meal. The Canadian 2025 crop is still seeking customers, particularly in EU, after a very disappointing start to their marketing year in terms of exports.

Good rapeseed crushing in India is driving more rapeseed meal to China, but at the same time, it is depleting rapeseed stocks ahead of the next harvest in February-March. With Canada gone, India became China's largest supplier of rapeseed meal. This coincides with a decline in India's rapeseed meal consumption due the use, for animal feed, of more dried distillers' grains from the increasing ethanol-biofuel production and consumption. The rapeseed oil stays in India and helps curb oils and fats imports like palm olein.

In the EU, there is a strong demand for rapeseed, also at the expense of sunflower seed, whose availability and price were yet problematic to fully meet crushers' needs.

Australia, which has been barred from the Chinese market since 2020 due to "phytosanitary concerns", is to ship its first rapeseed to China in five years, with three trial shipments booked by China for the fourth quarter. This trial follows a deterioration in relations between China and Canada, the world's leading rapeseed exporter. In 2024, most of the 6.4Mmt Chinese rapeseed imports, came from Canada. According to the latest estimates, the Australian harvest, currently underway, is expected to reach a 6.9Mmt, compared to 6.7Mmt last year.

Rapeseed oil follows ups and downs of rapeseed and competing vegetable oil prices. Buyers usually keep buying the dips. Demand for biodiesel production was quite good, following healthy biodiesel margins.

Sunflower seed oil

Wet and cold weather is further delaying the harvest in Russia and Ukraine and causing crop damage. Yields are continuously being revised downwards and cumulative weather-related crop losses, in EU and Black Sea region, this season may be as high as 5Mmt. This may result in an estimated total seed supply (end stocks + production) of maybe 62Mmt this season; still about 2Mmt higher than previous season but 4Mmt lower than in the 23/24 season.

The crush in EU is not yet fully up to speed due to a slow seed supply; and less crush means less oil production, resulting in higher oil prices. Oil stocks in general are still low but gradually improving and prices eased a bit. Too high prices always lead to demand destruction and the market has seen a bit of that too. Especially with much lower prices of rival oils. Consumers who can wait are postponing purchases and avoid buying on deferred positions, hoping for better times. Price will fix any problem, it always does.

Plantings in Argentina are about 75% done on an increased acreage vs last year; this may also pressure the market over time. 

Butter

Butter prices remain under pressure as stocks of butter are building. At the beginning of the month, Dutch butter prices were quoted at €5100/mt compared to €7400/mt begin June. The milk supply remains exceptionally good everywhere, and fat contents also remain high. However, this is gradually resulting in falling milk prices and raises the question of whether, and at what point, dairy farmers will shrink their herd and offer more animals for slaughter.

Fish oil

The production outlook in Peru remains uncertain. Fishing quotas are being restricted by the government in order to sustain the fishing industry over a longer period and avoid overfishing and destroying fish resources. The quota is amongst others based on calculated biomass in the ocean and on the share of juvenile fish. A situation which is quite supportive to fish meal and fish oil prices. Higher fish oil prices may lead to substitution by rape and linseed oil in fish feed.  

Linseed oil

An excellent linseed crop in Kazakhstan, where harvesting is near complete, is starting to weigh on seed and oil prices. Kazakhstan is expected to harvest in excess of 1Mmt of seed in 2025 and export already picked up. It may take a while for the cake and oil prices to adapt to the new reality but the course is set.

Petroleum & economy

Despite a slight recovery on Friday, market sentiment remains fragile for the time being. In early November, OPEC+ confirmed a slight increase in production for December, but also announced its intention to keep production stable in the first quarter of 2026. Suspending the production increase is a sign of caution in the face of a possible stocks increase. Although stock increases would protect against disruptions caused by Western sanctions on Russian exports. 

Russia's petroleum revenues reportedly fell to their lowest since August, with Chinese, Indian, and Turkish refineries suspending purchases from Rosneft and Lukoil pending the November 21st compliance deadline. As Russian crude accumulates at sea and traditional buyers withdraw, Russia faces a drop in the number of ships available for loading, less markets willing to receive, and more production capacity taken offline by Ukrainian drone attacks. Ukraine's ongoing efforts to cripple Russia's energy exports also resulted in the loss of about 20% of the Russian petroleum refining capacity.

Saudi Arabia is said to lower its prices in December for its Asian customers, suggesting demand weakness in Asia. And prices also eased after official data showed that Chinese manufacturing activity contracted for the seventh consecutive month in October, while exports also declined unexpectedly and domestic consumption remains sluggish. And there have been reports about persisting deflation in producer's prices and dropping consumer prices in China.

In the US, too, the industrial sector remains under pressure due to weak growth and uncertainty over tariffs, with manufacturing output falling for the eighth consecutive month in October. In Japan too, manufacturing activity contracted. In the Eurozone, where manufacturing is in decline, retail sales resumed their downward trend. The 0.5% growth rate recorded in June was the last month of growth observed, which does not bode well for consumption growth.

 Around the world, many companies are in cost-cutting and job-cutting mode as they see dark clouds gathering overhead and want to prepare for further calamities.

To top it all off, too many governments carry unsustainable debts and need economic growth and inflation and low interest rates to cope with this ever-growing mountain of debt.

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