Commodity Market Newsletter

Sovena USA does not guarantee that such information is accurate or complete.Opinions expressed within reflect judgment at this date and are subject to change without notice.

Monday’s open

Sovena Olive Oil Index 3.99*

(last week 3.97)

Soybeans10.27 ½

(last week 10.46)

Canola529.3

(last week 528.2)

Corn 3.47 ¼

(last week 3.58 ¼)

Soybean Oil 37.72

(last week 36.94)

EUR/USD1.06665

(last week 1.06005)

December 5, 2016

olive oilRelatively slow week in Spain with Poolred only registering around 3,000 tons during the last 7 days. Since prices continue to show signs of strength the demand is still not openly accepting this reality (highest December´s prices for over a decade) and keeps their hopes that at certain point generous supply of fruit will arrive to the mills. The decent cushion as carryover by September 30th (330K tons) is now almost gone, and more rains during the weekend are pushing back even further the harvest. In a week from now, we will have the November´s figures from Spain, and they are expected to be far away from the more than 250K produced a year ago. Let´s add the fact that Tuesday and Thursday are national holidays so the week won´t bring any significant changes besides some of the rains had an important and serious dimension over some areas of Andalusia, floods included, for sure an extra hurdle for the machines to perform at the fields.

With lampante prices averaging €3.20-3.25/kg (and minimum availability) as a strong support baseline, add €100/tons for virgin and an additional €100/tons to reach medium-quality extra virgin, and with these tiers you will have a rough picture of the current market situation. Don’t have to say that the more demanding the needs are in terms of immediate availability or a specific quality, the figure for extra virgin asking price will increase significantly.

Looking at this graph from the IOC showing the average monthly extra virgin prices for the last three crop years, we can see that Italy is already at the same (high) levels as the fall of 2014 and those prices were steady (and strong) until the next harvest size was “visible” (August 2015) when prices finally plummeted. Greek, Tunisian and Spanish extra virgin prices are more convergent and the interest, namely driven by the Italians, is tightening or relaxing the offer of each market either “under attack” or facing a withdrawn. Just a reminder that Spain reached €4.00/kg at the same time as Italy started to let go their prices (fall 2015). So, is Italy going to have issues to cover their domestic needs so their prices will continue to be extremely strong? Yes. Do other origins have room for more upside prices? For sure yes, however consumption would be hurt and December-January are the months when historically the core volume of the crops is produced hence a potential opportunity to see easing prices for excess of offers.

For more information, please contact RJ Bateman at (315) 797-7070 ext. 7214 or rjbateman@sovenausa.com.Sovena USA • 1 Olive Grove St. • Rome, NY 13441 • (315) 797-7070 • olive-oil.com

For the next couple weeks, let´s see how the harvest evolves now that we are facing a drier forecast after this weekend and how the mills handle late-matured fruit in front of an anxious demand. By December 13th (because of the holidays this week, AICA will probably take an additional day to release their November data), we will have more quantitative data to analyze the situation further. Meantime the IOC released the final import figures of the 2015/2016 crop year with important increases in Australia (18%), China (12%), Canada (8%), USA (7%) and Russia (4%), while Brazil (-25%) and Japan (-8%) took severe reductions. As part of their revised projections, the IOC shows –as part of their December’s newsletter- now a deficit between world consumption (est. over 2.9Mn tons) and production (est. to be slightly over 2.7Mn tons). This would translate into a carryover very similar to the (tight) one seen two years ago. As a recap, uncertainty is fueling the bulls at least until this crop is indeed available for sale. It seems like the size of this crop seems to be manageable (not really overwhelming) by an offer enjoying historically high prices for many months, and will be resilient to lose this momentum unless the evidences for the 2017/2018 are irrefutably optimal. The latest rains are great news for the prospects, but there is still a long way until we reach that point. It is not a good time to be short, but nobody wants to get caught “too” long. “Too” is the key here.

soyBean oilBSoybean oil futures traded to new highs on the rally in Petroleum. WTI January crude oil futures rallied close to $7/bbl, to $51.80. All this due to the OPEC agreement to cut production beginning in January of 2017. However, with the rally in Petroleum futures, this only gives reasoning for OPEC to (probably) over-produce during the month of December, exacerbating the current global glut of oil on the market. The next question will be whether OPEC abides by their own rules, if prices stay at these levels. The SBO market was just starting to digest the EPA mandated increases for bio-fuels, and the knee-jerk reaction to possible increases in SBO usage for the sector. However, there are vastly differing opinions on whether this will actually happen, as increased imports could actually fill the void. Palm Oil market has been a reason for support, as they’ve continued professing lower production from the past El Nino, but fighting against the reality of lower exports (-15% for November), and weakened demand from China. Pipeline supplies (Beans) from the farmer are filling up, but cash SBO basis has not reflected this fact. With the rally in futures, and the unwillingness of refiners to get competitive (at this point), cash markets have been steady, but higher than normal for this time of year.

outlookPetroleum (Brent) prices raised to over $54.00 a barrel on Friday after the biggest 1-week rally since 2009, following OPEC’s decision to cut crude output in order to rein in a global glut. But we saw CBOT soybean futures come under some pressure on expectations of a slowdown in export demand for U.S. beans, along with generally favorable South American crop weather. Projected Brazil 2016/17 soybean production is estimated (private sources) at a record 103.1 MMT, surpassing last season’s harvest by 7.6 MMT. Argentine growers have planted 46 percent of the area expected to be sown with soybeans in the 2016-17 season according to the Buenos Aires Grains Exchange, which is in line with average planting progress. All eyes remain glued on S. American weather. As mentioned, Funds are remaining long, banking on some weather related problems to appear, though, currently the weather forecasts show nothing to be detrimental in the upcoming weeks. BUllISh BEARISh

OPEC decision to cut Petroleum production starting in January of 2017. Malaysian Palm Oil exports, and Chinese Palm Oil imports, both showing signs of weaker demand.

EPA’s increased bio-fuel mandate starting in 2017 Technically VERY oversold (SBO) after this past week’s sharp rally

Funds still banking on possible weather risk in S. America, even though current weather is good (Risk Premium)

Divergent outlooks over the EPA’s mandates, over whether huge increases of SBO are actually needed

US$ backing off post-election surge China putting restriction on speculative trading in their futures market.

This is normally the time that export sales shift to S. America.

other oilsCanola: Advances in Malaysian palm oil, crude petroleum, and European rapeseed futures were all bullish for canola. But the major factor was the strength in the CBOT Bean Oil futures. Corn: Corn Oil values have been unchanged for weeks/months, even with the rally in the SBO futures. Buyers have been quiet, and offers have been stagnant, due too the lack of interest. Palm: Malaysian palm futures hit their highest in more than four years on Friday before easing to close in negative territory on weakness in related oils and a stronger ringgit.

*The Sovena olive oil index is a combination of prices Sovena collects from its own employees and our network of vendors from several countries around the Mediterranean region. The basket of contributing countries and each weight will not be changed for a period of at least 12 months beginning December 2009. It is a EUR-based index.While Sovena attempts to ensure that the content of this newsletter is accurate, the newsletter is provided “as is” and Sovena makes no representations or warranties in relation to the accuracy or completeness of the information found on it. Nothing in this newsletter should be taken to constitute professional advice or a formal recommendation. In no event will Sovena be liable for any incidental, indirect, consequential or special damages of any kind, or any damages whatsoever arising out of or in connection with the information contained in this newsletter.