Ups and downs. 

Prices of edible vegetable and animal oils and fats have been supported by rising energy prices and a weakening dollar. Markets were overpowered by capital flows and spillovers from external markets, such as metals, petroleum and a dollar slipping to a four-year low against a basket of currencies. Various factors created capital inflows and outflows from commodity and external markets, leading to portfolio reallocation by fund managers. Money managers typically invest first in metals, then in energy, and finally in agricultural commodities. 

Palm oil too helped boost the entire vegetable oil complex higher, by trading at its highest levels in three months thanks to a recovery in buying and exports and a seasonal production drop in Southeast Asia.

The Fed's decision to keep interest rates unchanged reflects its concerns about inflation, inflation which has led to a major reallocation of capital towards commodities. Funds have been buying gold and silver, pushing prices to record highs, in order to offset the dollar's depreciation. Now, money managers seemed to be looking for assets that appear undervalued and seemed to be diversifying to agricultural commodities.

Markets

Petroleum

A US aircraft carrier with supporting warships and thousands of troops arriving in the Middle East increased tensions and the likelihood of military action. Consequences of military action are unpredictable though, as Iranian retaliation could threaten shipping through the Strait of Hormuz, a key route for petroleum and LNG. And as the US carrier strike group made its way to the Gulf, the Iranian-backed Yemeni Houthis geared up to target vessels endangering once again maritime traffic via the Red Sea and the Suez Canal.

The US Dollar

Downward pressure on the dollar came from expectations of further interest rate cuts by the Federal Reserve (which didn't happen), uncertainty over tariffs, threats to the Fed's independence, and the idea that the Trump administration is seeking to artificially weaken the dollar, as well as rising budget deficits, all of which eroded investor confidence in the US economy. And from Trump's comment that the dollar's value was "great," implying that a weaker dollar is good for US exports. However, a weak dollar also fuels US inflation by making imported goods more expensive and it could also backfire on farmers, who e.g. depend on imports for certain fertilizers, the prices of which are set to rise even further.

Since Trump took office a year ago, the dollar lost about 16% of its value against the euro. To put things in perspective, between Jan. 4th 1999 and Jan. 30th 2026 its value varied between a low of 1.5990 in July of 2008 and a high of 0.8252 in October 2000, averaging $1.1823 which is about where we are now. The last ten years its value averaged $1.1216 against the euro. After the financial crisis the dollar trended higher till reaching parity with the euro in late 2022. Afterwards the dollar trended down again. Jo Biden was president from Jan. '21 to Jan.'25; it is not presidents but central banks and markets that drive currencies whereby trust is of utmost importance. 

At the end of last week, there was some profit taking in most markets, a meltdown of gold and silver values, a dollar rebound and corrections in energy and stock markets, after President Trump announced Kevin Warsh's nomination to succeed Jerome Powell as head of the FED. Warsh is perceived as a supporter of anti-inflationary policies, believing "that accommodative monetary policy would fuel inflation". And he is perceived less likely to lower interest rates. Time will tell.

Palm oil

A general upward price trend got support from the strength of the soybean oil market and declining edible oil stocks in major consuming countries. India also canceled some soybean oil purchases from Argentina due to the weak rupee and rising global prices, which increased the appeal of palm oil. Stronger demand ahead of the Lunar New Year and the start of Ramadan in February kicking in, as well as forecasts of lower production in January due to unfavorable weather conditions and the downward harvesting cycle, also supported prices.

Cargo surveyors reported that in the first 25 days of January, Malaysian palm oil exports increased by about 9% vs. the same period in December while January production is expected to turn out 16% lower. However, large inventories continue to weigh on the market and capped the breakout. Indonesia also decided to cancel the increase of the incorporation rates of palm-based-biodiesel this year, initially planned from 40 to 50%, although this is somewhat offset by concerns over future Indonesian palm oil production.

Soybean oil

Strong soybean oil prices supported soybean futures, which also rose thanks to the weak dollar which makes US crops more affordable for importers using other currencies. Fund buying further fueled the rally. Soybean oil futures climbed more than 10% over the past month after hitting a six-month low, and the premium over palm oil increased further.

However, weak bean exports from the US and an abundant global supply are keeping prices low compared to the peaks of 2022. Weather could still hurt Latin American crops as dryness and heat in Argentina are beginning to cause concern and in Brazil, rains slowed harvesting, but without major impact for now. Still, the South American supply is expected to remain more than abundant with the largest Brazilian crop on record presently being harvested!

China has purchased the promised 12Mmt of US soybeans, in conformance with the trade truce agreed with Washington. But the purchases were made by the state-owned companies Sinograin and COFCO, as China's 13% tariff on US soybeans makes them more expensive for private players than Brazilian beans subject to a 3% tariff. And according to some reports, China now increased its orders for Brazilian new crop soybeans. In Russia, the Minister of Agriculture said that Russia had achieved self-sufficiency in soybeans over the past five years and is now an exporter, thereby increasing competition in the global soybean market.

In principle global soybean oil demand is set to rise because of more usage for biodiesel production in Brazil and the US. Thus, leaving less to export. And since disposal of soybean meal could be a limiting factor to crush more beans there could be not enough soybean oil to fulfill demand which would lead to higher prices. 

However, Brazil postponed going from B15 to B16 in March as planned and, in the US, uncertainty remains regarding the limitations on tax credits for imported biofuels and feedstocks and whether the EPA will be able to reallocate small refinery exemption (SRE) to large refineries. Persistent delays in finalizing the policy forced some biodiesel plants to close or suspend operations. Then, India cancelled purchasing of soy oil in Argentina because palm oil is cheaper. It will go up or down.

Rapeseed oil

Canadian rapeseed continued flowing into the EU-27, while the market anticipated the imminent arrival of Australian rapeseed. But the recovery in Canadian exports to China and Chinese demand absorbing part of the Australian supply should further reduce the pressure exerted by rapeseed imports in the EU. In addition, UK demand continues to stimulate continental exports of rapeseed and rapeseed meal, European farmers' rapeseed stocks are declining and flows of Ukrainian rapeseed and rapeseed products to the EU slowed by the war in the region. 

Oil prices are also receiving some support, notably from the recovery in palm oil prices in Southeast Asia and higher diesel prices. But biodiesel activity in EU has been subdued. For rapeseed oil also the demand evolution for biodiesel production will be key. 

Sunflower seed oil

The best cure for high prices is high prices. And the rise in sunflower oil prices has led to a significant rationing of demand, particularly from price-sensitive countries e.g. in northern Africa and India and from anybody else who can work with a cheaper alternative. While high prices finally attracted sellers in Ukraine and Russia, those sellers encountered not much buying appetite from the buyers. Prices started to ease, although reluctantly as rival oils have been strengthening.

Also, a supply push from Argentina, currently harvesting and keen sellers at present prices, will weigh on global markets. Going forward prices should stabilize at more affordable levels.

Meanwhile, the situation remains critical due to persisting supply uncertainties caused by logistical disruptions resulting from the ongoing war in the Black Sea region and targeted Russian attacks on Ukraine's "export-oriented integrated agricultural supply chains." India is said to be buying mainly Russian oil (sanctioned by the EU), while the EU is more dependent on Ukraine.

Butter

Strong global milk production continues to weigh on dairy markets and with this milk supply push, large quantities of butter are being produced, while stocks remain high. The EU is also facing strong competition from cheap American butter. Spot butter prices in the EU dropped to below €3,900/ton, their lowest level since 2021, as an abundant global supply continues to weigh on the market.

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