Looking back and forward at our edible oils & fats markets

In the past twelve months olive oils prices fell to a multiyear low: at around or below their production cost. World production is forecasted to stagnate around 3.4 million metric tons but the huge Spanish carry out stocks continue to weigh on the market. A possible, weather related, lower Spanish production would be offset by increases elsewhere. Extra consumption will have to come from non-producing countries. 

Also butter producers faced a lower trending market. From €462/100 kg beginning December 2018, the European average butter price dropped 20% to €366 today. 

Crude rapeseed oil jumped 13% from $800 to $900 and for long it was one of the most expensive oils in the complex. But it didn’t break the $900 resistance level. That may change in the coming months. Rape stays supported by firmer prices from competing oils (soy, palm, sun) as well as by a further tightening of global rapeseed supplies this season. 

The price of palm oil gained about 40% in a year and refined palm became more expensive than refined soybean oil for the first time since long. The production growth in Indonesia and Malaysia slowed significantly after dry weather limited yields, while both major palm oil producers extended their biodiesel mandates from the start of next year. Based on road test results in Indonesia, the B30 policy is ready to be implemented starting 1st January. This helps to limit petroleum product imports, which contribute to the trade deficit and it helps to address challenges from traditional markets like the EU over sustainability and environmental issues. 

Lauric price levels are 25% higher than a year ago. Palm kernel oil and coconut oil have now both become more expensive than rapeseed oil. As it “normally” should be. 

In spite of continuing trade disputes between China and the U.S. and despite a record global sunflower seed crop, soybean oil and sunflower seed oil gained 10-15%. Soybeans stayed behind in price because it is more a “meal crop” than an “oil crop”. Due to the problems with African swine fever in China and elsewhere, global meal demand decreased. We now see soybean oil levels go up on the back of firm demand from India and China who seek to buy more soy oil versus palm. The U.S. produced less biodiesel, there is a big South American crop in the pipeline (not yet made!) and there was a big carry out of beans in the U.S.; but now an analyst calculated that the stocks to use ratio of soybeans in the U.S., this marketing year, will drop from 23% to 11.4%. Normally that would mean fireworks, but it is too soon to sing Hallelujah. Although something to watch. 

Animal fats surprised everybody. In normal times the price of tallow tends to follow the price of palm oil. In the oleochemical industry, in animal feed formulations and in food applications, animal fats can to a certain extent be replaced by palm oil. But there are differences that make some prefer animal fats for their application, like in animal feed formulations animal fat has 7% more nutritional value. But European HVO-biodiesel producers started to replace palm oil by animal fat… which is very disruptive in this relatively small market for a by-product of the meat industry! Difficult to predict where this will go and if they will ever pay €900/t for tallow, which allegedly is the breakeven price today. 

In the past year prices have been driven by biofuels and China and that is likely to continue into 2020. But for our agricultural markets an eventual trade agreement will have a more symbolic effect than a fundamental change in world supply and demand. Weather and climate may prove to be more challenging. Some say that we are beyond the peak of globalization and the pendulum is now swinging back to something else. We shall see, said the blind man as he anxiously looks for the new demand drivers.

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