More supply chain disruptions to come?
Your Bi-weekly update on edible oils & fats by Aveno
May 8th, 2020
Markets are characterized by uncertainty. Low mineral oil prices and lower demand caused by the global lockdowns continue to influence prices.
With half of the world’s population in lockdown and most developed economies in a near standstill, the focus shifts to supply chain disruptions. There is the enormous shock of demand destruction, disruptions on the supply side and, if the crisis lasts, an increased counterparty risk. Outcome will depend on the depth and length of the economic slowdown.
Source: European Commission / IGC, Monthly average close May 7th
Generally bearish markets
In the agri-food sector it looks like the biggest impact of the pandemic, so far, has been on the meat and biofuels industries. But the Belgian trade association Belpotato.be also reports that the global consumption of deepfreeze fries has dropped 40%. That represents a lot of lost oil consumption to bake those “not consumed fries” in, and this leaves a lot of unsold potatoes in stock.
In the US and Canada, the closure of meat plants (sick workers) causes lower animal feed demand which also means lower demand for soybeans. With 22 plants closed in the US, meat prices went up while the price of livestock collapsed. Supply disruptions forced one supermarket chain to ration the sale of meat products to three items per customer. And some regions in the US even noted a spike in hunting and fishing permit requests! So, there, demand dynamics for soybeans are not very bullish and the renewed US-China trade tensions are not supportive either.
In Europe the situation is not that dramatic but meat and dairy prices did also drop as most demand from the out of home consumption vanished. And we also saw the drop in biofuel production from EU origin raw materials such as rapeseed and sunflower due to limitation of transport.
In Malaysia, “the Star” reported that palm oil production is dropping due to covid-19 movement restrictions which kept farm workers from harvesting. Later on, palm oil lost previous gains due to reported higher Malaysian production numbers and lower petroleum prices and rising inventories…
Laurics (coconut and palm kernel) are losing demand from oleochemical and food clients but winning demand from soap and healthcare products producers.
There are some problems with the supply of linseed from the producing countries and quality issues just as China stepped up buying linseed products. Some global tightness is expected in linseeds as well as in groundnuts where China is tripling its imports.
But most markets remain in a wait and see mode; waiting to see the effects of the relaxation of lockdowns in Europe. But also, to see the further evolutions in the US and India. And if China keeps buying and importing all kinds of agricultural products.
Global oil seeds and major vegetable oils production
(excluding animal origins and other minor veg. oils).
Source: European Commission / USDA
Brent crude petroleum price (May 7th): $ 29.24/barrel
Oil demand dropped 30% while during the past three decades it had been consistently rising. Earlier, prices moved up on productions cuts and some “relaxation of lockdowns”, but concerns about oversupply and near-term energy demand continue to weigh on prices.
Source: Trading Economics
1 EURO (May 7th) = USD 1.0783
The euro weakened on concerns about the ECB's bond buying program. Long term, Germany's opposition to the plan may turn out positive for the European currency as printing money does not solve structural problems. Also, the USD has reasons to weaken, for instance the US is heading for a public deficit of 15% of GDP this year, and the eurozone “only” half of that. A weaker Euro for us means higher oils and fats prices. But an exchange rate between two economic zones mainly measures the economic strength between the two. So, for the future: place your bets…, we’ll see.
There is always opportunity in times of crisis and it is our privilege to serve you, please know we are always here to help. Hope that all of you are fine and that you stay safe and healthy!
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Unless otherwise mentioned the crude oil values quoted in these documents are prices landed in EU without import duties, handling, storage, financing, refining, packing, transport or any other cost related to bring the product to market. They are used as market trend illustration. Substitution of oils is possible but different oils have different fatty acid profiles and are not all interchangeable for all applications. One can make biodiesel from all oils and fats but one cannot make mayonnaise from coconut oil. This document is exclusively for you and does not carry any right of publication or disclosure. This document or any of its contents may not be distributed, reproduced, or used for any other purpose without the prior written consent of AVENO. The information reflects prevailing market conditions and our present judgement, which may be subject to change. It is based on public information and opinions which come from sources believed to be reliable; however, AVENO doesn’t guarantee the correctness or completeness. This document does not constitute an offer, invitation, or recommendation and may not be understood, as an advice. This document is one of a series of publications undertaken by AVENO and aims at informing broadly a targeted audience about the edible oils & fats market. AVENO’s goal is to keep this information timely and accurate however AVENO accepts no responsibility or liability whatsoever with regard to the given information.
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