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

Bees pollinating sunflower in a field in Ukraine
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.

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

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:

New crop sunflower price development in 2021

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):

 Sunflower oil

01.09.-14.12.2021

01.09.-14.12.2020

01.09.-14.12.2019

01.09.-14.12.2018

01.09.-14.12.2017

 UK

993

 

 

 

 

 Egypt

 

 

 

518

 

 Spain

 

4.924

6.156

1.326

8.349

 Italy

 

 

1.856

 

253

 India

12.011

207

1.082

29.858

24.182

 Iraq

 

 

 

 

1.764

 Cyprus

 

453

 

 

 

 China

41.945

76.958

66.760

49.853

52.938

 Lebanon

2.205

6.000

4.670

 

 

 Malaysia

87

 

 

 

 

 Netherlands

7.578

2.138

 

 

6.293

 UAE

 

 

1.012

933

 

 Réunion(Réunion Island, a French department in the Indian Ocean)

345

528

1.306

 

 

 Saudi Arabia

449

3.570

 

284

 

 Taiwan

3.924

1.251

3.475

 

 

 Tunisia

12

 

 

 

 

 Turkey

2.500

 

 

 

 

 France

 

 

9.693

 

 

 Portugal

 

 

 

 

1.400

 Poland

514

 

 

 

 

 Total

72.563

96.029

96.010

82.772

95.179

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?

Vegetable oil industry in Ukraine (click for higher resolution)

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).

Truck for vegoil transportation at a crushing plant in Ukraine

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.

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