global oils and fats market view - mvo · 2015-03-13 · global oils and fats market view david...

©LMC International, 2015 113/03/2015

Global Oils and Fats Market View

David Jackson, Director of Oils Research

MVO, The Hague, March 2015


• Two main factors determine oils and oilseed prices today.

• One, as I will demonstrate very soon, is the world crude oil

price as a consequence of the emergence of biofuels.

• The other is a more traditional factor, the supply-demand

balance in the markets for oils, meal and oilseeds.

• I start by explaining how a price band emerged which

linked vegetable oil and petroleum prices. This requires

some discussion of policies in South East Asia.

Factors driving the market today


The emergence of the oils price band


The EU price band is now well established. Brent

crude (in $/tonne) is the floor and vegetable oils trade

within a fairly wide band above this floor.

0

200

400

600

800

1,000

1,200

1,400

1,600

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

EU

pri

ce

s,

US

$ p

er

ton

ne

Brent Crude Soy oil Rapeseed oil Palm oil


If you study spreads over Brent, the floor has been

tested three times recently for CPO. But today,

premiums are far above recent levels.

-100

0

100

200

300

400

500

600

700

800


EU

pre

miu

m o

ve

r B

ren

t cru

de

, U

S$/t

on

ne

Palm oil Soy oil Soy oil average Palm oil average


What determines the CPO spread over Brent? It

moves in the opposite direction to palm stocks.

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

-100

0

100

200

300

400

500

600


MP

OB

Sto

cks, '0

00 to

nn

es

EU

pre

miu

m o

ve

r B

ren

t, $

/to

nn

e

Premium Average premium Stocks


How does the price band floor work?


-250

-200

-150

-100

-50

0

50

100

150

200

250

300

350

Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15

Pre

miu

m o

ve

r B

ren

t, U

S$ p

er

ton

ne

CIF Rotterdam

This diagram plots daily CPO differentials vs. Brent in

the EU. This is the daily version of the price line we

have already seen…


-250

-200

-150

-100

-50

0

50

100

150

200

250

300

350


Pre

miu

m o

ve

r B

ren

t, U

S$ p

er

ton

ne

Cif Rott FOB Belawan

In South East Asia, FOB prices are lower than at EU

NW ports because of the freight to the EU…


-250

-200

-150

-100

-50

0

50

100

150

200

250

300

350


EU

pa

lm o

il p

rem

ium

ove

r B

ren

t, $

/to

nn

e

Cif Rott FOB Belawan FOB Belawan - export tax

Within Indonesia, because of export taxes (now gone!),

CPO has been cheap as a fuel source, without any

subsidies, for long periods. This creates the price floor.


-100

0

100

200

300

400

500

600

700

800


EU

pre

miu

m o

ve

r B

ren

t cru

de

, U

S$/t

on

ne

Palm oil Soy oil Soy oil average Palm oil average

Let’s go back to the price spreads over Brent in the

EU...now we see the price floor in action. Where will

prices head in the next six months?


A look at animal fats


-250

-150

-50

50

150

250

350

450

0

200

400

600

800

1,000

1,200

1,400


Ta

llow

pre

miu

m, U

S$ p

er to

nn

e T

all

ow

an

d S

tea

rin

pri

ce

s, U

S$ t

on

ne

Tallow Premium (RH Axis) Palm Stearin (LH Axis) Tallow (LH Axis)

EU prices of tallow and palm stearin. The tallow

premium remains strong because of EU double counting

legislation.


0

300

600

900

1,200

1,500


US

$ p

er

ton

ne

Palm Olein Palm Stearin Tallow

EU palm fractions and tallow prices, with six month

forecasts (NW EU ports)


Why must vegetable oil prices decline (if

petroleum remains stable)?


-200

-100

0

100

200

300

400

500

600

Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15

Pre

miu

m o

ve

r B

ren

t/W

TI,

US

$ p

er

ton

ne

FOB SE Asia Decatur Soybean oil

Answer: Because biodiesel cannot price itself into

discretionary biofuel markets at this veg oil/crude oil

differential.


-200

-150

-100

-50

0

50

100

0

10

20

30

40

50

60

Jan-12 Jan-13 Jan-14

Pre

miu

m o

f loca

l CP

O, $

pe

r ton

ne

Ex

po

rts

fro

m I

nd

on

esi

a, m

illi

on

ga

llo

ns

Exports not to US & EU Premum of Indonesian CPO over Brent

Free market Indonesian biodiesel exports move

promptly in the opposite direction to the local CPO

price premium over crude.


The longer term view


Demand for oilseed products sets the pace


4%

6%

8%

10%

12%

14%

16%

6%

7%

8%

9%

10%

11%

12%

1983 1988 1993 1998 2003 2008

% c

han

ge

in o

il de

man

d p

er c

ap

ita

% c

han

ge

in G

DP

pe

r cap

ita

% change in GDP per capita% change in oil demand per capita

China USA

-1%

0%

1%

2%

3%

4%

-1%

0%

1%

2%

3%

4%

1983 1988 1993 1998 2003 2008

% c

han

ge

in o

il de

man

d p

er c

ap

ita

% c

han

ge

in G

DP

pe

r cap

ita

% change in GDP per capita% change in oil demand per capita

Oil demand per head responds well to income changes.

But the Chinese response is slowing, while the US is at

zero growth.


1980-2014/15, kilograms per year

0

5

10

15

20

25

30

35

1980 1985 1990 1995 2000 2005 2010 2015

Fo

od

oil c

on

su

mp

tio

n p

er cap

ita

kg

/ye

ar

Japan USA EUAustralia Korea

0

20

40

60

80

100

120

1980 1985 1990 1995 2000 2005 2010 2015

Me

al c

on

sum

pti

on

per cap

ita

kg

/ye

ar

Japan USA EUAustralia Canada

Food oil Meal

The US is not alone in witnessing food oil and meal

saturation per capita.


0

20

40

60

80

100

120

140

160

180

200

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023

Mil

lio

ns

ton

ne

s o

f so

yb

ea

ns

Chinese imports G3 exports

Chinese growth since 2009 at 10% G3 exports since 2009 at 5%

Chinese soybean imports vs. G3 (Brazil,

(Argentina and the US) soybean exports,

applying growth rates since 2009.

?


The supply of oilseeds, meal and oils


0

10

20

30

40

50

60

70

1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

Mil

lio

n T

on

ne

s

Soybean Oil Palm Oil Rapeseed Oil

Sunflower Oil Palm Kernel Oil

Average Annual Growth 1975-2014:Palm Oil = 8.1%Palm Kernel Oil = 7.6%Rapeseed Oil = 6.1%Soybean Oil = 4.4%Sunflower Oil = 3.0%

Palm has dominated the expansion in the supply of

oils.


1982-2013

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

De

via

tio

n f

rom

tre

nd

Deviation of new plantings from trend Deviation of price from trend

For palm, our forecasts rely on Malaysian deviations in

price and area from long run trends. Area is now

constrained there.


1991-2013

600

950

1,300

1,650

2,000

2,350

2,700

3,050

3,400

20

30

40

50

60

70

80

90

100

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

CP

O p

rice

, Rin

gg

its/ton

ne

An

nu

al

Ma

laysi

an

se

ed

sa

les,

mil

lio

ns

Annual Malaysian seed sales, millions CPO price, Ringgits/tonne

A supplementary source for plantings is oil palm seed

sales. These confirm the relationship with local CPO

prices.


1988-2013

0

200

400

600

800

1,000

0

40

80

120

160

200

1988 1992 1996 2000 2004 2008 2012

Ind

on

esia

n C

PO

pric

e, U

S$/to

nn

e

Mil

lio

ns

of

ge

rmin

ate

d s

ee

ds

Seed supply in Indonesia CPO price

The relationship holds for Indonesian local sales of

germinated seeds vs. Indonesian CPO prices. Land is

less constrained.


1980-2025

0

2

3

5

6

8

9

11

12

14

15

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025

To

tal

are

a (m

illi

on

he

cta

res)

Low Indonesia Low Malaysia U$70 IndonesiaU$70 Malaysia U$100 Indonesia U$100 Malaysia

Nonetheless, forecasts for oil palm areas do not differ

much even with very different Brent crude oil price

assumptions.


1980-2025

A smaller harvest in the Black Sea will raise the

sunflower oil premium later in the year, perhaps

pricing sunflower oil out of India. .

-160

-120

-80

-40

0

40

80

120

160

200

240

280

0

2

4

6

8

10

12

14

16

18

20

22

2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 2013/14

SF

O P

rem

ium

ov

er R

SO

, $/to

nn

eSu

nseed

ou

pu

t, m

illio

n t

on

nes

Combined Ukraine and Russia Sunseed Output

Sun Oil Premium over Rapeseed Oil


Overall conclusions


1982-2013, million hectares

-100

-50

0

50

100

150

1982 1986 1990 1994 1998 2002 2006 2010

To

tal

are

a c

ha

ng

e s

ince

1981,

mil

lio

n h

a.

Change since 1981 for oil crops Change since 1981 for grain

There was a profound change in direction of the world

grain crop area around 2003, while oil crops continued

their previous upward trajectory.


15%

18%

21%

24%

27%

30%

0

50

100

150

200

250

2000 2003 2006 2009 2012 2015 2018 2021 2024

So

yb

ea

n's S

ha

re o

f Are

aMil

lio

n h

ecta

res

Corn Soybean Palm Wheat Soybean's Share of Area

We expect the next decade to revert to the former

situation where grain area stabilised and oil crops

captured area.


Thank Youwww.lmc.co.uk

Acknowledgments:

MPOB, USDA, US DOE

../../www.lmc.co.uk.htm


This presentation and its contents are to be held confidential by the client, and are not to be disclosed, in whole or in part, in any manner, to a third

party without the prior written consent of LMC International.

While LMC has endeavoured to ensure the accuracy of the data, estimates and forecasts contained in this presentation,

any decisions based on them (including those involving investment and planning) are at the client’s own risk.

LMC International can accept no liability regarding information analysis and forecasts contained in this presentation.

© LMC International, 2015

All rights reserved

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global oils and fats market view - mvo · 2015-03-13 · global oils and fats market view david...

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