Your biweekly update on edible oils & fats by Aveno.
Bi weekly dd October 28th 2024.
Upward price trends continue.
Palm oil prices surged to a two year high last week pulling the whole edible oils and fats complex further up. And while palm oil production stagnates, and sunflower and rapeseed production shrinks, observers keep wondering what alternative could grow enough to meet the world's rising edible oil demand? But as always, prices will do their job and curb demand where necessary.This month the Economic activity in the eurozone contracts for the second month in a row as a result of the prolonged recession in the industrial sector. The much larger services sector continued to grow, but at a slower pace. Industrial orders fell for the fifth month in a row and a quick recovery of the European economy is very unlikely.
The situation is negative for the labor market as the industry is losing many jobs and job creation in the services sector came to a near standstill for the first since early 2021. Lower inflation creates more room for the European Central Bank to revive the economy by making monetary policy less restrictive. Some even talk of a panic to cut interest rates to a “neutral level” as soon as possible.
An underlying bearish tone emerging from a poor global economic outlook causes volatility in a petroleum market which continuously balances slowing global demand with uncertainties from geopolitical unrest and the outcome of the US presidential elections.
Markets
PALM OIL
Supported by healthy export demand indicators in producing countries, crude palm oil markets traded at relative strong levels, seemingly not bothered by a lower CBOT. Last Friday, ‘January 25 crude palm oil futures’ closed at MYR 4536 after peaking at 4603 on Thursday. Lower than expected production, reduced exports supplies and decreasing stocks also supported prices.
The price increase is being mainly driven by concerns about production in Indonesia and Malaysia, which together account for more than 80% of the global supply. Older trees, which produce less, and unfavorable weather conditions have weighed on production. At the same time, demand increased and higher prices could push up food inflation in countries like India and China which will be on the lookout for cheaper alternatives. FOB palm oil prices are now at a premium over soy while historically palm oil was mostly at a discount to soybean oil.
On top of a lower production, the Indonesian government confirmed again that it would increase the share of “palm oil biodiesel” from 35 to 40% in January. This would take from the market about 1.6Mmt of palm oil, leading to still lower available export volumes.
Soybean oil
According to the International Grains Council’s (IGC) October Grain Market Report from October 17th, in the 2024-25 marketing year, global soybean production is expected to increase by 7%. As several of the world’s biggest producers are expecting record crops, production would be 421Mmt vs. 395Mmt in 2023-24.In Chicago Illinois, in the U.S. of A., bean futures collapsed below $10/bushel, and November soybean futures settled last Friday at $9.87, on harvesting pressure from a crop over 80% done on October 20th. The slide was supported by rains replenishing soil moisture in Brazil where farmers are looking to accelerate plantings after a severe drought delayed the start of planting by about 3 weeks. The ‘Weekly Commitment of Traders report’ showed managed money adding back 19,233 contracts to their net short position as of October 22nd, to 59,574 contracts (remaining net short beans but long meal and oil).
It must be noted that the expected ample supply of beans remains subject to normal growing weather in South America and there are increasing worries that this supply increase won’t be able to compensate the estimated decrease of about 3.7Mmt in sunflower seed and rapeseed oil production this season. Especially with the demand growth for soybean oil for biodiesel production in North and South America.
Crude soybean oil stayed relatively strong with December futures closing at $0.4415/lbs. last Friday, but soybean oil prices may also remain volatile on biofuel policy risk in the US. To make the picture more complicated: some wonder if there is enough crush capacity (in the right places) to process the ample global bean supply and if the disposal of soybean meal will not become a major problem. Global demand for oil is relatively healthier than demand for meal in a context where the meal supply is relatively bigger than the oil supply. This may become quite a (price)balancing act. Nevertheless, global soybean oil production is seen rising by about 3.5Mmt this season to roughly 66Mmt and till today soybean oil remained competitive on the global market vs. other major oils.
Rapeseed oil
Rapeseed prices continued to rise in EU, helped by higher international vegetable oils prices. In Canada rapeseed benefited from still very good Chinese demand and export shipments also accelerated since the beginning of the month.
A higher-than-normal rapeseed crushing activity in JAS mainly driven by a (new crop) seed supply push and high rapeseed meal prices led to more rapeseed oil production in EU than needed and kept oil prices under pressure. Some of that excess oil has been exported to China and now a tightening global rapeseed supply, mostly in EU, will most likely reduce global crushing and support oil prices. Depending on the evolution of EU biodiesel demand in coming months and seed availability, the availability of rapeseed oil at the end of this season may become difficult. Today, despite high prices, oil remains competitive vs. sun oil but the outlook for the rapeseed complex remains bullish.
The recent very wet weather in France slowed down harvest progress but also raised concerns on quality of the harvested seed. Some fields were also just abandoned. The market is still assessing the impact of this situation on the total global seed supply. Another concern is the quantity and quality of the so called “high oleic sunflower seed” variety this season. France is a major producer of this variety…. this concern is already partly reflected in the price and can grow out of control if uncertainty remains around the harvest outcome.
Overall, the oil content of seed seems to be significantly lower than normal. Classic as well as high oleic sunflower seed oil remains at an important premium over other oils which should ration demand and consumers are already looking for cheaper alternatives. So far, India is not ready to pay the current prices but the upside potential is still very much alive.
Sunflower seed oil
Fundamentals remain bullish and farmers remain reluctant sellers of sunflower seed. Seed and oil prices continued to rise due to significant weather-related production losses in the Black Sea region but also in France.The recent very wet weather in France slowed down harvest progress but also raised concerns on quality of the harvested seed. Some fields were also just abandoned. The market is still assessing the impact of this situation on the total global seed supply. Another concern is the quantity and quality of the so called “high oleic sunflower seed” variety this season. France is a major producer of this variety…. this concern is already partly reflected in the price and can grow out of control if uncertainty remains around the harvest outcome.
Overall, the oil content of seed seems to be significantly lower than normal. Classic as well as high oleic sunflower seed oil remains at an important premium over other oils which should ration demand and consumers are already looking for cheaper alternatives. So far, India is not ready to pay the current prices but the upside potential is still very much alive.
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Disclaimer
Unless otherwise mentioned the crude oil values quoted in these documents are prices landed in EU without import duties, handling, storage, financing, refining, packing, transport or any other cost related to bring the product to market. They are used as market trend illustration. Substitution of oils is possible but different oils have different fatty acid profiles and are not all interchangeable for all applications. One can make biodiesel from all oils and fats but one cannot make mayonnaise from coconut oil. This document is exclusively for you and does not carry any right of publication or disclosure. This document or any of its contents may not be distributed, reproduced, or used for any other purpose without the prior written consent of AVENO. The information reflects prevailing market conditions and our present judgement, which may be subject to change. It is based on public information and opinions which come from sources believed to be reliable; however, AVENO doesn’t guarantee the correctness or completeness. This document does not constitute an offer, invitation, or recommendation and may not be understood, as an advice. This document is one of a series of publications undertaken by AVENO and aims at informing broadly a targeted audience about the edible oils & fats market. AVENO’s goal is to keep this information timely and accurate however AVENO accepts no responsibility or liability whatsoever with regard to the given information.