Global Markets: Oilseeds – Market Signals to Sell Soybean Stocks

    With a decline in South America soybean production and uncertainty regarding export prospects for sunflower products out of the Black Sea region, soybean prices have risen dramatically in recent months. The May contract on the Chicago Board of Trade (CBOT) has risen 38 percent since early December, or nearly $4.70/bushel, to $17.07 on March 8.

    The November contract for new-crop soybeans has risen at a more modest pace (21 percent), adding nearly $2.60/bushel to the contract price since early December. This has led to a widening premium for old-crop soybeans versus new-crop in the United States. Premiums that were near 2 percent in November 2021 are currently 15 percent in early March.

    The result is higher prices and widening premiums which encourage selling now versus holding stocks into the 2022 U.S. harvest. However, it also discourages near-term purchases by buyers that can afford to wait until later in the year.

    This is observed in U.S. Export Sales data which shows a faster pace of sales for new crop soybeans, particularly to China. In addition, China is expected to increase reserve selling that will offset some near-term sales from Brazil in the coming months.

    A slower pace of China soybean imports from Brazil is almost a necessity given the current high prices and dramatic decline in soybean supplies in South America. Strong soybean price appreciation observed for February has slowed for the November contract in early March suggesting a better balance of demand with supply, at least in the longer term.

    However, considerable volatility remains possible, particularly in near-term contracts, given the changing situation in Ukraine and energy markets and with U.S. planting intentions due at the end of the month.

    Conflict in Ukraine Creates Uncertainty for Oilseed and Product Exports

    Russia’s invasion of Ukraine on February 24 has already significantly impacted global markets. Since the start of the conflict, crush facilities and ports in Ukraine have suspended operations, and other countries have imposed sanctions on Russia limiting trade from the region. This month’s forecast represents an initial assessment of the short-term impacts as a result of this action.

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    Sunflowerseed Complex: In a typical year, Ukraine and Russia account for about 80 percent of global sunflowerseed meal and sunflowerseed oil trade. Due to port and crushing facility closures in Ukraine, sunflowerseed and product exports have been cut this month: seed exports are down 57 percent, oil exports are down 14 percent, and meal exports are down 13 percent.

    As a result, Ukraine sunflowerseed ending stocks are up nearly seven-fold this month to 1.9 million tons. Similarly, domestic consumption (feed and waste) has more than tripled this month on an increase in damaged and spoiled product as well as increased full-fat feeding while meal production is halted.

    In Russia, export reductions are more muted with exporters facing uncertainties in Black Sea shipping routes and the impacts of sanctions. Russia exports are down 33 percent for sunflowerseed, 4 percent for sunflowerseed oil, and 3 percent for sunflowerseed meal.

    While Russia and Ukraine account for the majority of sunflowerseed product exports, sunflowerseed oil and sunflowerseed meal are important but relatively small in terms of global consumption. In a typical year, sunflowerseed oil accounts for about 9 percent of global vegetable oil consumption and sunflowerseed meal accounts for about 5 percent of total soybean meal equivalent consumption of protein meals.

    Uncertainty over Black Sea exports have led competing Argentina prices to jump 47 percent for sunflowerseed oil and 27 percent for sunflowerseed meal in less than 2 weeks (Feb 23-Mar 8, IGC Argentina FOB Up River).

    Rapeseed Complex: Together, Ukraine and Russia account for about one-fifth of rapeseed exports and a little more than 15 percent of rapeseed oil exports. Ukraine rapeseed and product exports are frontloaded during the marketing year, and as a result were largely shipped prior to the conflict. Hence, Ukraine rapeseed exports are unchanged this month as nearly all were shipped between July 2021 and December 2021.

    Similarly, rapeseed meal and oil export forecasts are unchanged this month. Conversely, Russia rapeseed exports are down 33 percent this month on weak exports to China over the first half of the marketing year. However, Russia rapeseed crush and oil exports are both forecast up this month on lower rapeseed exports and strong rapeseed oil sales to China and Norway in 2021.

    Global Vegetable Oil Markets Tighten Further on Disruption in Black Sea Exports

    Conflict in the Black Sea region has shut down sunflowerseed oil exports from both Ukraine and Russia. Combined, the region represents roughly 80 percent of global sunflowerseed oil exports. Sunflowerseed oil accounts for only 12 percent of global food oil consumption and 9 percent of total vegetable oil consumption (including biofuels and other industrial uses). Its share of global vegetable oil trade is similar to soybean oil at 14 percent of global trade.

    This is particularly concerning to countries that rely on imported sunflowerseed oil to meet domestic needs. The main importers include India and China, the largest importers of vegetable oil, as well as the EU and many Middle East and North Africa (MENA) countries including Turkey, Iran, and Egypt.

    Finding alternative vegetable oils will be a challenge in a market that has been facing tight supplies even before the events in Ukraine. Drought in Canada last year significantly reduced rapeseed for crush and export. Canada is the world’s largest exporter of rapeseed oil, representing more than half of global exports.

    Increasing export volume prior to the 2022 harvest is a non-starter. Likewise, drought in South America has reduced soybean supplies by 14 million tons from last year and this is forecast to be the lowest harvest in 6 years. As with rapeseed, it will be difficult for South America to significantly increase soybean oil exports without a reduction in seed exports or diversion of oil from biofuel.

    A similar situation exists with palm oil where supplies have been tight on lower production growth. Complicating matters are export restrictions imposed by Indonesia, the largest palm oil exporter, in order to reduce the impact of higher prices on its consumers.

    The growing tightness in vegetable oil supplies is evident in price trends over the past 5 weeks. The drought in Canada last year has kept Canadian rapeseed at high levels over the past 6 months while the shortfall in South America soybean production contributed to the rise in soybean and palm oil prices in February.

    Sunflowerseed oil prices have been on the rise since the situation in the Black Sea region deteriorated in late February. For example, sunflowerseed oil prices in Argentina have soared and reached $2,250/ton as of March 8. In early February, sunflowerseed oil was well positioned to increase its share of global trade and consumption amid high premiums for rival oils but is now more expensive and less accessible than substitutes.

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