Week 47: Overview of the world veg-oil market

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Nov 25,
2016
Market weekly analysis Agri

Soybean

• The announcement of the US Environmental Protection Agency about raising the biofuels targets in 2017 to record levels came as a big surprise one day before a public holiday. The biofuel production is expected to raise by 6.5% next year. Maize-based bioethanol would represent around 75% of the output and soya-based biodiesel around 25%.

• As a result, we could see a rally of soybean futures which hit their highest levels in two years. Soybean oil prices increased 6.5% day-on-day on CBOT markets on Wednesday 24th November before the Thanksgiving market closure.

• Increasing demand for soybean oil may push the prices even higher. Compared to last year, the biodiesel industry in the US produced 37% more biofuel while the soybean output has not been able to catch up. The lower-than-predicted production of palm oil also did not help and will influence the performance of soybean oil prices next year.

Palm oil

• Following the EPA announcement and the rally of soybean, palm oil prices hit highest level in four years. The prices increased around 4% since the end of last week and were traded at the level of $762 per MT on average in Rotterdam.

• Increasing biodiesel targets will keep putting pressure on the palm oil prices. Introducing B20 mandate in Indonesia will increase the country’s demand for palm for biodiesel use by 70% (to 10.6 million tons) by 2020. This will mean lower export of palm oil from one of the world’s biggest producers.

Rapeseed

• The rebound of gasoil also contributed to the bullish trend of the oilseed complex of this week and sustained rapeseed and canola prices.

• Helped by a favorable euro/dollar exchange rate, rapeseed prices increased by 7,75 €/t to 406 €/t on Dutch Mill markets close to their highest level in 2016. ICE canola increased by 1.5% day-on-day.

Biofuel mandate in the EU

• A draft document from the European Commission showed the intention to reduce the 1st generation biofuels’ cap between 2020 and 2030 from 7% to 3.8%. Consequently, the share of waste-based biofuels should increase.

• Lobbies and associations from the agricultural industry reacted immediately after the publication of the news. They want to maintain the food-based biofuels’ share at 7% to secure the investments and sustain feedstock prices such as rapeseed oil.

• The Swedish Energy Agency is replacing the tax exemption system to sustain biofuels in the country. The new system will be based upon a GHG savings mandate in the transport sector. The system should be implemented starting from 2018. There will be two different mandates: one for gasoline and one for diesel which will increase gradually until 2030.