The World Trade Organization recently pointed to the stagnation of global trade. The fall of the Capsize freight index to its lowest since 2008 and lower container freight prices illustrate shrinking global maritime trade. We have an EU energy crisis, a faltering Chinese economy in lockdown and a strong dollar combined with ongoing interest rate hikes. All signs that the world may be moving into a recession and many commodities eased from the bearish sentiment the economic outlook is spreading.
Petroleum is one of many commodities that loses buyers on a sad economic outlook and edible oils prices were pressured by the many bearish factors gaining more weight. The good outlook for rape and sunflower seed production on top of palm oil weakness kept a lid on prices. The Argentinian government came up with a new policy, the “soybean dollar scheme” which seems to be working, to encourage farmers to export more soybeans! And the Indonesian government actively continues to promote the export of palm oil to get rid of burdensome inventory. While Ukraine has been above expectations in finding alternative export routes (trucks, barges) and after the export deal with Russia many seagoing vessels loaded in UA ports.
A potentially deep economic recession and ample supplies remain a limiting factor for price increases. But as always there are two sides to every story.
Our Russian friend Gas Putin wants to revisit the deal on the Ukraine export corridor because “exports are going to the "West" and not to developing countries” and thus Putin wants to limit the deal to a number of selected countries. This created nervousness and supported prices a bit but so far everything goes as planned.
In the U.S. soybean oil has found support from the silently growing production of HVO (hydro treated vegetable oils as biofuel) despite the lower consumption of classic biodiesel (FAME or SME soy methyl esters). In Argentina the biodiesel admixture is back at 12.5% while Brazil and Indonesia are increasing their biodiesel usage too.
In EU oilseed prices came down but the very high energy prices lead to higher processing costs for crushers and refiners keeping prices of refined oils more than very well supported. And a weakening € increased the price of all $ commodities by more than 20% compared to two years ago. The euro may weaken further.
This week began with a rebound in edible oil prices following a bullish USDA/WASDE report on Monday.
It may also be that we get a softer economic landing than expected.
MARKETS
Soybean oil
Since beginning September, the trend for the soy complex was down, mainly due to expected record sowings in South America and an expected record yield next spring. In addition, demand from China, the biggest bean buyer in the world, also decreased in 2022.
Towards the end of the old crop season the oil leg in the complex found support from U.S. domestic demand for biodiesel production and from the reduced soybean crush in Argentina, the world’s largest soybean oil exporter. But everyone stayed optimistic on the new U.S. crop now being harvested.
The last WASDE report came a bit as a shock because since last month the USDA reduced its U.S. soybean production estimate from 123.30 to 119.15Mmt due to perceived lower yields. We shall recount the beans when they are all harvested and see what comes out of it. It will be key to watch the evolution of ending stocks in the U.S. and in the world which will be mostly influenced by south American weather, Chinese demand (revised down to 97Mmt) and north American biodiesel production and demand.
In Argentina, a new exchange rate arrangement was made between government and farmers, which means that farmers finally can sell their soybeans and get an honest pay for their hard work instead of only peso’s. Beans are already leaving the country.
Sunflower seed oil
Since June, Black Sea crude sunflower seed oil prices lost more than 30%, mainly due to the resilience of the Black Sea people finding solutions to their production and logistic problems. Not by spreadsheet management but the old-fashioned way: by working hard and getting on the road. They have been so successful that they now have a problem in finding a home for the production, since most EU buyers are more or less covered till the end of this year. It is expected that India and China will step in, to replenish stocks, to buy bulk oil as long as port loadings are possible.
Ukraine’s sunflower seed production is revised up by 1Mmt to 10.5Mmt due to beneficial rainfall in August and Russia’s bumper harvest has just begun. The Russian crop will bring more seed and oil on the market which may pressure prices further.
Rapeseed oil
The availability of seed, meal and oil improved but the low water on some waterways is still a handicap to supply all crushers with seed. Rapeseed production in Australia was revised up again on recent beneficial rainfall improving yield prospects.
Palm oil
Palm oil prices continued to slip due to the Indonesian export policy and growing stocks. But since end last week palm oil prices rebounded on sympathy with stronger soybean oil and because it is still very attractive compared to alternative oils.
USD, mineral oil and biofuels
Though U.S. inflation is down to 8.3% YoY, but still higher than hoped, this strong number keeps the Fed on a hawkish path and supports the expected 75bp rate hike decision for next week. Last week the ECB finally raised interest rates by 75 bps and the Euro recovered from slightly under to slightly above parity vs, the USD. But with the present interest differential between US/EU some expect the EURO to slip further down south.
Petroleum is struggling to stay in the $90-$100 range. Prices increased when the “Iran nuclear deal” talks appeared to go nowhere, which would keep Iranian oil off the market. Last week, an announced supply cut by OPEC+ wasoffset by a faltering Chinese economy. Demand from the world's biggest petroleum importer could even shrink this year for the first time in 20 years. The zero COVID policy keeps people off the street during holidays and reduces consumption.
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