Oilseed Hustle: Sunflower and Soybean Price Trends
Photo by: Latifundist.com
The current year has become a record one for Ukrainian agrarians by various indicators including the record harvest of wheat, record indicators of rapeseed production, still expected record harvest of corn and current record indicators of sunflower yield. But, as we remember, the popular interpretation of the law of conservation of matter states: "If there's a plus, there must be a minus somewhere." And the domestic sunflower prices have fallen to a 4-year low (partly due to the strengthening of the hryvnia).
New crop progress
As of October 11, sunflower harvesting in Ukraine was completed on 5.172 mln ha, or 88% of the area projected by the agricultural agencies of Ukraine (5.85 mln ha). At the same time, analysts mostly deal with the areas exceeding 6 mln ha, while the forecast of harvesting area from USDA is 6.2 mln ha.
As I have noted above, this year's yields are record-breaking and currently average within the country at 2.4 t/ha. However, the U.S. Agrarian Ministry in its October report put its estimate of yield at 2.34 t/ha (i.e. lower than the current one), thus reducing it compared to the September forecast of 2.5 t/h. As a result, the USDA expects a harvest in Ukraine at the level of 14.5 mln t, although in September it stated the figure of 15.5 mln t. As a reminder, last year's harvest amounted to 15 mln t under the USDA data.
Related story: The October USDA Report: Reviving the Market
Russia will also harvest a bumper crop. USDA estimates it at 13 mln t, but this forecast seems cautious, and perhaps the final figure will be close to 14 mln t. It should be noted that the sunflower yield in Russia at the time of harvesting is also record high.
Thus, this season we will get the highest level of supply in the Black Sea region, which is quite difficult for domestic processing to cope with amidst cautious demand for sunflower oil and meal having affected the price level. It is noteworthy that Russia has recently been actively negotiating with China at the level of agrarian ministries and may well try to push aside our products in this market.
What to expect of prices?
Traditionally, sunflower prices in our country are seasonally at low levels from the start of harvesting until late December. After that, the sales volume drops and the demand for processed products (oil and meal) grows. Thus, by the end of September and at the peak of hryvnia strengthening, sunflower prices on EXW terms (central region) fell to the minimum level since September 2015 of 8000 UAH/t, after which they demonstrated a rebound from these levels to 8200-8300 UAH/t.
However, this year the threat for sunflower oil demand and for sunflower prices with it may come from the soybean market. As we recall, China has not purchased soybean from the U.S. for a long time as a result of the trade war between the two countries, although relations have recently become slightly warmer. If we put aside the issues of African swine fever (does China need American soybeans at all?) and assume that soybean supplies from the United States to China will resume to the previous level, we will see an increase in the supply of soybean in the Chinese market and such product of its processing as soybean oil.
Until recently China was forced to reduce or cancel import duties on vegetable oils precisely because of the deficit of soybean oil in the domestic market emerged from the fall in soybean processing.
All this may lead to a decrease in demand for sunflower oil and meal from China and, consequently, to a drop in prices for these products on the international market. In short, the resolution of U.S. and Chinese trade war issues does not add optimism to the sunflower market suffering from oversupply. Let's not forget about the Canadian canola which also hopes for a resolution of the trade war.
Soybean hustle
As for the Ukrainian soybean, the situation here is two-way. Prices since the start of harvesting have traditionally rushed downwards, driven by the strengthening of the hryvnia. Moreover, domestic processing of oilseeds is now being affected by the sunflower crop, which, of course, does not play into the hands of the Ukrainian soybean market. On the other hand, soybean yield in Ukraine this season turned out to be lower from 2018: 2.34 t/ha on 78% of the harvested area vs. 2.52 t/ha on the corresponding date last year.
Therefore, given the reduction in sown areas, we will not see record production here. In contrast, soybean exports in September were record-breaking — over 270 thou. t due to good demand from Egypt which for some time remained uninvolved in our market. Active export shipments and slight respite in the currency market led to stabilization and even growth of soybean prices in Ukraine in recent years. In mid-September, Ukrainian soybean was traded at 315 USD/t CPT, and in the first ten-day period of October, prices rose to 330 USD/t. And, surely, the potential resolution of the trade conflict between the USA and China already supports prices on the world market.
Alexey Eremin, Agritel analyst