More food inflation

Global food prices continued to rise in October, mainly due to increases in vegetable oils. The last FAO "Food price index", tracking changes in international prices of food commodities, shows a 2% month-on-month increase. The vegetable oil index in particular gained 7.3% from September to October, to reach its highest level in two years. Palm oil prices are up due to lower productions in Southeast Asia and the same applies to sunflower and rapeseed production elsewhere.

Markets

Palm, soybean, sunflower and rapeseed oil prices rose sharply in recent weeks. Mainly due to production/supply problems versus the prospect of rising demand for biodiesel production, particularly in Indonesia, but also in Brazil and elsewhere in the world, where mandates are in place to help decarbonize fuels for road, sea and air transport. A trend that is likely to continue over the next few months.

Last week, at the Indonesian Palm Oil Conference and Price Outlook (IPOC) in Bali, leading industry analyst Dorab Mistry said that global vegetable oils demand is seen rising by 6.5Mmt while supply is expecting to grow by only 3Mmt. 

PALM OIL

With palm oil futures reaching two-year highs, palm oil continued to pull the entire edible oil market upwards, on the back of a recovery in Asian demand, a seasonal decline in production in Southeast Asia and the announced increase in incorporation mandates for the biodiesel production in Indonesia.

Markets will closely be following all decisions regarding next year's B40 biodiesel mandate in Indonesia, which will use up additional palm oil and thus leave less available for export. Also, to watch is how the production evolves in Indonesia. The palm oil market is certainly seen tight until mid-2025 which should support prices around MYR 5000. The only downward pressure can come from a massive shift in consumption to cheaper soybean oil.

Soybean oil

Last Friday, the USDA's WASDE report provided a bullish surprise with a cut in soybean yields of 1.4 to 51.7 bushels/acre, due to dryness late in the US growing season, and by lowering the bean carry-out by 80M to 470M bushels. Soybean production was set at 121,41Mmt, coming from 125Mmt not so long ago. The Crop Progress report of November 4th showed 94% of the 2024 US soybean harvest had been completed.

In the past weeks, the soybean complex surprised with its ability to discount the "tariff concerns" and rally off the lows. Maybe there's been too much focus on shorting ahead of the election while talk about China, looking to buy more soybeans ahead of possible increased import tariffs, supported bean prices. But most probably also because of tightening old crop supplies in South America. Some analysts also think there may be some inflationary buying starting to take place in the agricultural sector.

But there is also caution as the much-improved weather in South America helps make a new potential soybean bumper crop.

Beans and meal may therefore remain the weaker legs in the complex. And as soy oil is the cheapest of all oils at the moment, soybean oil should strengthen further. Global soybean oil prices rose on firm global demand midst limited supplies of alternative vegetable oils and with soy oil tracking palm oil new highs were explored: last Friday Dec '24 Soybean Oil Futures closed up again at $0.4877/lbs. while Jan '25 Bean Futures closed $10.30/bu.

In anticipation of a Trump victory, (soy) oil demand for biofuel production in the US has been very poor and till uncertainty clears, it will remain low. Still, soybean oil firmed. India, for the first time in two years has bought oil (cheaper than palm and sun) in the US.

The state of California (in fact the 5th economy in the world with a population of 39M people who voted democrat) has always been an important driver behind biofuel legislation and usage in the US and will continue doing that. State legislation will stay biofuel friendly. The inauguration of the new administration is in January and imports of Chinese UCO (used cooking oil) may get penalized. Then there is talk of shifting the "credits" (subsidy) from blenders to US biofuel producers. So a lot of things going on and after the dust settles in early 2025 the whole biofuels and soyoil situation in the US might turn quite bullish again, with fallout elsewhere in the world. Better be prepared, expect the unexpected!

Rapeseed oil

Rapeseed prices in EU continued to rise and are stabilizing at new highs in a hungry EU market. Support also came from the supply tensions in the sunflower seed market after disappointing harvests, both in France and Eastern Europe. In Canada, rapeseed prices remain firm, supported by strong record exports. Last Friday in EU Feb '25 rapeseed Futures settled at €536.50/mt, the highest level in nearly two years. Traders are holding large long seed positions as the seed availability situation is likely to worsen as we move on into the season.

The rapeseed crop in EU was again revised downwards and observers are still discussing the final number but everyone agrees it is low and therefore EU is more reliant on imports from Ukraine and Australia than in previous years. In Australia, harvest is progressing well and quality of the seed is so far satisfactory. The high seed prices are also encouraging farmers to sell their crop.

Strength in bean oil, palm oil and sun oil is spilling over to rapeseed oil but the rapeseed crush margins have deteriorated, and poor biodiesel margins have not created extra oil demand for the moment. However, EU demand in 2025 from the biodiesel producers is expected to stay strong. Even though, due to several market technicalities on nearby, rapeseed oil demand has been subdued.

The fire in a major EU biodiesel production facility (1.3Mmt capacity) last week, causing a shutdown for repairs of several weeks, has cut off the market of a certain supply. Today it is difficult to assess the impact on e.g. (replacement)demand. Something to keep an eye on as there is a bullish as well as a bearish story to tell. Fundamentally nothing changes, overall, long-term, rape markets remain "constructive".

Sunflower seed oil

It's crystal clear that the 2024/25 season has to cope with a huge weather-related production loss of sunflower seed in the Black Sea region and in EU. Global seed production is estimated now about 10% lower than last season and ending stocks of seed are expected at historically low levels. Farmers are still not selling seed and crushers have only a thin margin; someone will have to move sometime.

Evolution of crude sunflower seed oil in $/mt FOB NW EU

High prices may of course ration demand and price buyers of oil will automatically switch to cheaper soybean oil which seems to be about the only alternative at the moment. Some may switch to rape or corn also albeit limited. Sun oil prices will probably keep a big premium over other oils until something starts moving and unless sun oil needs to buy demand, which seems very unlikely at the moment. An uncertain factor is also Russian prices and exports on the global market.

Petroleum

Early October, we saw a flare-up in petroleum prices amid fears that Israel would attack Iran's oil infrastructure. Ongoing hurricane season and extreme weather also contributed to price rallies. But as the hurricane risk fades there seem to be few reasons now that could boost prices in the near term, or geopolitical tensions would have to escalate unexpectedly somewhere. OPEC+ produced too much even though they reported early November that they will extend production quotas by 1 month and implement the 180,000 barrel/day production increase only January onwards. The organization refers to a tougher economic environment, weak demand from China and higher production in non-OPEC+ countries.

The sentiment hoovering over the market is one of expectations of macroeconomic hard landings (except maybe in the US?), extreme weak petroleum demand and as such ongoing fears of oversupply in 2025. Basically, not something helping to boost biodiesel profitability and contribute to a growing appeal of edible oils as renewable energy source. On the other hand, decarbonization of fuel markets, in most cases, is less consumer driven demand than it is policy driven demand. Lower energy prices however make it cheaper to produce and process agricultural commodities and provide consumers more purchasing power.