Your biweekly update on edible oils & fats by Aveno.
Bi weekly dd December 23th 2024.

Exciting times with exceptional risk….

As the year unwinds all boats seem to be getting into calmer waters with many markets easing and squaring positions before the Christmas holiday season. For many this is also a time for looking back and reflecting on a bumpy ride through an eventful year.

The past months the euro weakened considerably and despite all geo-political tensions, since about two years -and though volatile-, petroleum prices didn’t explode but weakened further on weak economic data. Natural gas in EU however never returned to the low €20-25 levels of 2020. We’ve had butter prices reaching record highs and after two extremely bad years, global olive oil production got back on its feet. We’ve seen palm oil prices climb and build an unusual premium over other oils while the dynamics of the soybean complex led soybean oil to become the cheapest of oils.

Lately, vegetable oils came under pressure with a palm oil market dropping to its lowest in weeks on weak export data. When at the same time, the soy complex continued to decline in anticipation of a big new Brazilian harvest (and by extension with Argentina, Paraguay and others, the prospect of a record soybean production in South America in 2025).But markets also retreated, awaiting answers on what the plans of president-elect Trump will be and what impact it will have on our markets. Especially biofuel policies will be crucial.

It can go up or it can go down, fast, like a roller coaster, and next year will again be full of excitement paired with exceptional risk. Like all other years we’ve lived in and survived. Though some may say (like many did before them): but this time it’s different. And, yes! Some things might be a bit different. Trump and Musk will make a difference. India taking over the role of China as fast-growing economy and hopefully there will be peace for the whole world. We’ll see.

“The best thing about the future is that is comes one day at a time,” said Abe Lincoln.

Markets

PALM OIL

March ’25 Palm oil futures settled last Friday at a low MYR 4434/mt despite a slowdown in production and eroding ending stocks in South East Asia. The past weeks, the market got pressured down by uncertainty over Indonesian and US biofuel policies as well as by sluggish export demand and competition from cheaper soybean oil.

The weather is currently not helping production and logistics in many producing areas, and also for palm the implementation of biodiesel policies in mainly Indonesia will be the most important price determining factor to watch.

Soybean oil

In the US, the soybean complex faces considerable headwinds with a record crop coming in South America; the plunging Brazilian Real vs. the US dollar; concerns about the proposed tariffs on US imports from foreign countries by the new Trump administration and their impact on agricultural markets; and uncertainties around the American biofuel policy in the coming months and years.

But being the cheapest oil around, where possible, demand is shifting away from more expensive oils like sun and palm and as such putting a cap on prices. Fundamentally there are globally more than enough beans available this season and trade flows may change but the most important price determining factor will be what happens with demand for soybean oil in ‘biodiesel land’ (US, Brazil, etc. …).

Last Tuesday the Commitment of Traders Report showed managed money added 17,932 contracts to their net short position in soybean futures and options (76,252 contracts) as of December 17. In Chicago, on Friday the 20th, Soybean Oil Jan '25 futures settled at $0.3948/lbs. and Soybean Jan '25 futures at $9.74/bushel which are quite depressing low levels for sellers.

While a huge soybean crop brings relief to a globally tight oil market (vs. demand including biofuels), there are limitations. The first is having enough crushing capacity in the right places to process all those beans with a sufficient margin to cover all costs. And as protein (36-40%), carbohydrates, oil (19%) and fiber are the main components of the bean, crushers also need to find sufficient outlets for all the soybean meal, which has by then become a byproduct of crushing for oil. And the 20% oil revenue should be big enough to make it all worthwhile…

Rapeseed oil

Rapeseed and oil prices had firmed a bit after the suspension of river traffic on the Moselle following an accident causing a temporary halt to river traffic. But the market eased quickly when concerned market participants rapidly adjusted logistics to ensure supplies. Demand for crushing in EU remained fairly weak while international seed competition is gradually growing. More rapeseed loadings from Australia mainly to Belgium and France were reported and Canadian rapeseed too remains competitive on the EU market. On Friday, February 25 Rapeseed futures settled at €516.75/mt. Low soybean oil prices also kept a lid on prices as well as low biodiesel margins

As most oil from imported seed is not suited for the food chain, this may become an issue later in the season. Although the timing is hard to predict, the MJJ position for non gm food oil might sooner than expected become very ‘technical’. In coming months, EU biodiesel production and the kind of feedstock used will determine the price direction. Less palm oil usage in EU is bullish rapeseed oil unless more animal fats and (imported) used cooking and tall oil and even soybean oil is redirected to biodiesel production. A bit unpredictable but it will be exciting to follow up on.

Sunflower seed oil

Sun oil prices corrected, with an increasing number of sellers and a limited buying interest. Overall, sunflower seed and oil remain tighter than in previous years, but the pressure from soybean oil caused a correction as sun oil needs to compete for demand in a global market. Although e.g. India has been importing more sun to replace more expensive palm, the sun oil market feels a bit heavy at the moment and towards the end of the year in N.-W. EU, prices of crude sunflower seed oil dropped below $1200/mt following the move of other vegetable oils.

But procurement optimists should be cautioned that the global oil production is expected to be 13%-16% lower than last year and end of season stocks will be much lower too; later in the season this could trigger much higher prices, especially if e.g. all supermarket buyers’ step in the dance at the same time.

Olive oil

After two bad years, global olive oil production is doing great again! This is already reflected in lower prices but it is good to keep in mind that the stocks at the end of the season are anticipated to remain below the five-year average and historically low…. As we move on into the season and as demand recovers, prices may adapt too.

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