Brittle, Anxious, Nonlinear, Incomprehensible. Vegetable Oils Market 2021

News Service

17 December 2021, 16:20

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Bees pollinating sunflower in a field in Ukraine
Photo by: Latifundist.com

In light of the inconceivable changes that have swept the world, the term BANI has become fashionable. So congrats to us all, the oilseed sector is now trending like never before, and BANI is now very much in vogue. Let's sort out what the word means and what the oilseeds market has to do with it.

B — brittle

Sound and long-standing systems may fail anytime. Before, the harvesting factor or record production pressured the market, but not now. The Black Swan is just around any corner.

So, having looked back on the past year, we did not rush to form the forwards before the harvesting campaign, even though with the volumes of our own sunflower/soybean, it was a risky position for us. In the season 2021/2022, we have reduced forward sales twofold(!) compared to last season. Below you can see how the price for the new crop sunflower (2021) increased with the harvest progress:

Curiously enough, in the first four months of the season (Sept-Dec), there is a significant decrease in the volume of sunflower oil exported to China. This is due to the record stocks in China early in the season and low local prices. MHP's geography of exports has expanded in the current season (thou. t):

A — anxious

Stress from the fear of defaults, negative crushing margins, weak coverage of plants, prices for freight, gas and fuel are not giving confidence in the future. Uncertainty looms over the market players: what strategy to pursue?

RELATED: Sunflowerseeds Processing in Ukraine. Market Leaders Have the Final Say

Thanks to its farming segment, MHP probably has the highest volume of grain for processing in Ukraine in the second quarter of 2022 (shocking content). And selling vegetable oil under forward contract now is a challenge.

N — nonlinear

The disproportion between causes and effects leads to unbalanced results of strategies adopted and decisions taken. Oilseeds S&D is rather cramped, labour shortages in Malaysia, low stocks in major importing countries, and reduced sales of sunflowerseeds by farmers trigger a "bullish" mood.

And here comes Omicron to prevent us from hanging loose. The vegetable oil market responded with a decline and most of the demand was concentrated on the spot. But interestingly, the high-oleic market, which, just to remind you, is formed by HoReCa, was not interrupted by Omicron, and premiums of 200 USD/t are still being voiced by buyers. Petroleum has slackened its position, but we can still sell soybean oil with a USD 50 premium for biodiesel consumers (unlike the situation in the feed market, for example).

But something tells me that we can clearly see the cause-effect relationship in the sunflower oil market processes since natural gas grain drying is sort of a luxury. We did see everyone switching to husk burning but what about the diesel grain dryers? The heavy metal concentrations in raw materials deserve special consideration.

At the moment the vegetable oil market is stalled. The uncertainty about the new coronavirus strain and the upcoming holidays are preventing the demand from taking shape, yet we do not give up and look towards the fundamentals, which are still bullish in the long term perspective.

Lesia Shvets, senior manager of the export sales division at MHP S.A.

News Service