Amid tariff and monetary unrest -
Uncertainty rules
When president Trump moves his mouth to speak, markets also move but amid tariff commotion, our markets remained mostly undecided on which direction to take and kept mostly moving (fluctuating in a range) sideways. Our markets cry for more clarity and certainty on tariffs and on biofuel policies. Changes in administration always create a certain degree of uncertainty but president Trump has a clear agenda and tends to act decisively and quickly; hopefully we’ll see clearly soon. Untill then volatility will be around with prices reacting from one news headline to the next.
In the meantine stock markets declined when investors reacted to possible additional tariffs while factoring in expectations of a surge in inflation. And central banks (which set monetary policy to meet inflation targets and support economic growth, stimulate or slow down the economy) face growing uncertainty about the economic landscape in 2025. In China deflation risks persist.
Inflation
Targeting three important American trading partners (Mexico, Canada & China) simultaneously and a fourth (EU) in the pipeline, is bold. Tariffs mean more expensive imports which make fighting inflation harder and the FED may have to prolong its pause in interest rate cuts. A higher interest compensation for dollar deposits (& risk) will support the dollar and some analysts even expect the Euro to drop below parity with the USD. This would make imports of dollar commodities into EU more expensive and fuel (imported) inflation too…
2024 had the largest round of global interest rate cuts in years as inflation was thought to have been overcome and major economies, except Japan (which raised its rate for the second time in less than a year), were expected to continue cutting borrowing costs this year. The Bank of England, the ECB, Sweden, Canada…. continued rate cuts. The US Federal Reserve and China’s central bank stalled and appear to be waiting for D.T.’s next move.
To stimulate a stagnating to shrinking economy in the Eurozone, the ECB cut policy interest rates by 25 basis points (deposit facility, main refinancing operations and marginal lending facility decreased resp. to 2.75%, 2.90% and 3.15%, by February 5th). The ECB also ended its Asset Purchase Program (APP) and Pandemic Emergency Purchase Program (PEPP) which had started in 2015. The goal of that quantitative easing was to fuel inflation when the ECB feared a Japanese deflationary scenario. The Eurosystem no longer reinvests the payments from maturing securities, a move to quantitative tightening.
Petroleum
The fear for dwindling petroleum demand outweighed the extra sanctions targeting Iran after the US said it would use a “maximum pressure approach” to prevent Iran from developing a nuclear bomb and it would seek to “reduce Iranian petroleum exports to zero”. Petroleum settled lower for the third consecutive week and lost all price gains of this year on fear of potentially long-lasting trade disputes which could dampen global economic growth and reduce energy demand. President Trump also restated his intention to increase production in the US.
Super Tariff-man is disrupting the existing global economic order by firing his tariff guns first in the tariff battle he promised. China took some countermeasures, albeit limited for now. If US petroleum producers see no (price) incentives to increase production it may never happen. Also, ‘more friendly’ negotiated solutions with China, Iran, Canada, Mexico, EU… are not excluded.
But for now, uncertainty and volatility rule.
Palm oil
Friday, Feb 7th, ‘Palm Oil Apr '25 futures’ closed at MYR 4505/mt, reaching a three-week high on lower production due to heavy rains and floods, hopes for a rebound in demand from India after purchases and stocks there hit multi-year lows and on anticipated Ramadan demand. India’s palm oil imports declined due to price premiums over soybean oil and seasonal cold weather.
Price optimism was however capped by caution ahead of this Monday’s ‘Malaysian Palm Oil Industry Performance Report’, including inventory and export numbers (not yet known at the time of writing) and concerns around the state of the Chinese economy. Malaysia’s palm oil exports may have declined by 12% month-over-month in January. But also, many of the market players took Lunar New Year holidays.
Even though the first quarter of the year remains tight, it is still widely expected that the price premium of palm over several other oils will turn into a discount again when seasonal higher production kicks in and stocks recover. The price level will however then depend on the price evolution of competing soybean oil and sun and rape…
Soybean oil
Last Friday Feb 7th, in Chicago, ‘Soybean Mar '25 Futures’ closed at $10.49/bushel, oil at $0.4598/lbs.
As soybean oil remained the cheapest vegetable oil on the global market, global soybean oil demand remains very strong. Sun oil prices have gained and palm oil exports also declined in the last months, further impacting global vegetable oil markets and contributing to firmness of soybean oil prices.
In general, the soy complex reacted to a mix of production data, weather-related supply concerns and geopolitical developments. Weather in South America and all possible scenarios from tariff implications were drivers for change but as long as not much is decided not much is changing.
The US imposed an additional 10% tariff on Chinese imports, with China responding with tariffs on various products, however, it excluded soybeans from its tariff list, which helped support the market. China is able to replace US soybeans by more imports from Brazil, with a minimal net cost impact. As to Canada and Mexico and biodiesel policies all routes remain open. Tariffs on Canadian rapeseed oil and meal could trigger a very bullish move for soybeans and products in the US. In 2024, roughly +10% of feedstock used for biodiesel was Canadian rapeseed oil and abt. 33% was soy oil.
Although Argentina benefited from improved rainfall, easing concerns after a period of drought, the Buenos Aires Grain Exchange estimated the crop at 49.6Mmt. Brazil’s harvest is expected to hit a record 174Mmt according to analyst Celeres and 174.88Mmt according to Safras & Mercado. Way above the USDA’s 169Mmt estimate but this mountain of beans in the making keeps weighing on global markets in spite of dryness damage in Southern Brazil, Paraguay and Argentina and wetness in Brazil delaying the harvest and causing quality and logistical concerns.
Rapeseed oil
The rapeseed market too is affected by the political uncertainties playing out in the world. Competition from Australia and Canada continues to weigh on the EU market. In EU, last Friday, ‘rapeseed May ’25 futures’ closed down at €516.50/mt and oil prices eased lately in sympathy with petroleum.
Fundamentally rapeseed oil should be more bullish especially towards the end of this season (MJJA) but the uncertainty around the impact of the Trump Administration’s decisions on tariffs on Canadian products and the plans to restrict the use of imported UCO (used cooking oils) for biodiesel production keep weighing on the market. A big supply of rape-seed/oil and UCO could shift to EU.
As the 25% tariff imposition on Canada was paused for 30 days, for more in depth discussions between Washington and Ottawa, some think the tariffs will not materialize. That may be good for Canada’s meal exports to the US but if it’s oil and biodiesel are not eligible for US biodiesel subsidies, Canada might still wind up with too much oil on its hands. But this is speculation. Only Trump knows.
Looking forward, rapeseed prices for the next EU harvest firmed on critical weather conditions during January in France and, to a lesser extent, in Germany. What's more, trade tensions could discourage Canadian farmers from planting much rapeseed this spring.
Sunflower seed oil
The European Commission recently revised the last sunflower seed harvest and pegged it at around 8Mmt. This revision brings the year-on-year decline to 18%, as unfavorable weather throughout 2024 has significantly reduced yield potential. The crop is also 18% below the long-term average, making it the smallest EU crop since 2015. This in addition to a lower crop in Ukraine and Russia, last year.
The premium for high oleic sunflower oil over classic sunflower oil is also historically high as most high oleic varieties are grown and kept segregated in EU. In France +75% of the crop is high-oleic!
The higher prices for sunflower seed oil have been reason for subdued demand and many buyers sideline with sun oil prices at a premium over other oils, making them cautious not to step in too far too soon. But as the marketing year progresses, stocks of seed and oil dwindle, which could prove to be very supportive to prices. Amid a tightening supply, sun oil prices have a big growth potential in 2025, before the next crop falls!
Already, tightening seed supplies and reserved farmer selling are leading to less crush (negative crush margins) in Russia and Ukraine and consequently lower sun oil production.
Russia continued to export at a high rate and prices in export destinations got under pressure, as pipelines and stocks are full with Russian exporters pushing their oil to global destinations. Ukraine was absent from big export destinations and with smaller quantities focusses on EU demand that pays higher prices.
In Argentina harvesting started and by end January was about 15% complete.
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