March 19, 2012
The oilseeds market has been pushed higher so far this year by a series of factors, some of which have nothing to do with the fundamental supply and demand situation of the market.
In Europe, crush margins have been squeezed as low rapeseed availability has forced rationing by price on the market. Concerns over South American crops have driven soybean prices higher.
A higher crude oil market, particularly the European Brent Crude market, pushed up by concerns over supplies from Iran, has helped bolster the vegetable oil markets.
Prices have also been affected by currency, with the euro showing renewed strength following a bail-out deal with Greece in late February.
In a report published at the end of January, the International Grains Council noted a 5% rise in U.S. soybean futures since its previous report two months earlier. “The market had a fairly weak tone at the end of November, weighed by macroeconomic worries, particularly E.U. debt concerns,” it said. “Unfavorably dry conditions in South America started to provide some underpinning in early December.
“Nevertheless, declines to 14-month lows were triggered by USDA’s mid-month supply and demand update, pressured by a reduced export forecast and higher projected carryover stocks. Escalating fears about dryness in South America, especially in Argentina and southern Brazil, led to a subsequent sharp increase in prices, with additional support from gains in other commodities, especially maize. While there were some beneficial rains in Argentina and Brazil during January, overly dry conditions persisted in many areas and helped to maintain the generally bullish market sentiment. However, a bearishly interpreted USDA supply and demand update on Jan. 12, which included another cut in exports and a further rise in stocks, sparked steep declines. Nevertheless, as of Jan. 18, U.S. soybean export quotations, at $461 fob (Gulf), were $23 higher than at the end of November.
In February, crop woes were still playing a major role. “Soybean markets made headlines last week after another downgrade to the Argentine crop and strong U.S. export trade with China,” the U.K.’s HGCA commented in an article on the market. It cited figures from the Argentine government putting that country’s 2011-12 soybean crop at 43.5 to 45 million tonnes, which, it noted, was well below the current USDA estimate of 48 million tonnes. “The low South American crops may switch export business to the U.S.,” it said.
In the previous week, a Chinese trade mission in the U.S. had reportedly bought 12 million tonnes of soybeans, triggering a sharp gain in CBOT soybeans. “Crude oil supported values with ongoing tensions with Iran and lower U.S. inventories outweighing lingering E.U. debt worriers,” the HGCA said. “MATIF rapeseed followed higher with concerns over poor new-crop conditions prolonging an E.U. deficit adding support.”
“We’re trading politics, not commodities any more,” John Thorpe, head of Oilseed Rape at U.K. grain company Openfield, told World Grain. “We are about to embark on another year where there will be so many things affecting the market rather than standard supply and demand.”
The strong euro is proving bullish for U.K. sellers. The price of crude oil is also helping. “Lump all that in with drought and crop concerns in Argentina, Paraguay and Brazil, drought conditions in China, cold weather in Eastern Europe and dry weather across Europe,” he said. “I don’t think it’s too much to worry about at the moment, but people are beginning to mention it. So that’s been all fairly supportive to the old crop market. The crushers have been out of it for quite sometime now, probably with
Crush margins for rapeseed in Europe have shrunk as the market discourages supply. Even so, he expected the European market to remain in deficit.
“They’re talking about less rapeseed being used in the E.U. because of poor crush margins, but you are still being very reliant on a lot of Australian rapeseed coming in,” he said.