Peak spending season is coming
Boosted by the continuous rise in crude oil, soybean oil and palm (9678, 168.00, 1.77%) oil prices, coupled with the arrival of the peak consumption season, around the National Day, the three major oil futures of domestic soybean oil, palm oil and vegetable oil jointly broke through the upside and refreshed the high point of the year. Looking forward to the future, the fundamental bearish impact of U.S. soybeans is basically released, south American soybeans (6181, 33.00, 0.54%) planting period and growth period are still facing uncertainty, while the main palm oil producing countries are about to enter the production reduction cycle, rapeseed main producing countries are reducing production, and domestic oil futures continue to rise in the context of domestic oil and fat consumption gradually entering the traditional consumption peak season.
The picture shows the production of soybeans in the United States over the years
The picture shows the ending inventory of U.S. beans over the years
The picture shows the weekly export sales of U.S. beans
The picture shows brazil's soybean production over the years
The picture shows the port palm oil inventory in the past 4 years
A stronger crude oil boosted oil prices
Due to the lack of active production increase in major producing countries, coupled with the gradual recovery of the world economy from the new crown pneumonia epidemic, the demand for crude oil has increased, resulting in a phased imbalance between supply and demand of crude oil, which has promoted the continuous rise in international crude oil prices. The NYMEX crude oil futures near-month contract hit its highest since October 2018 on Friday, its seventh consecutive week of gains. The rise in crude oil prices has made vegetable oil biodiesel have certain cost advantages, which will stimulate biodiesel production and increase industrial consumption of vegetable oils and fats. Higher crude oil prices directly boosted soybean oil, palm oil and vegetable oil prices.
In addition, in response to the impact of the epidemic on their own economies, major developed countries around the world have adopted quantitative easing policies of different degrees and different forms, putting a large amount of money into the market, which has caused inflation concerns to rise. Since April last year, the COMMODITY PRICE INDEX CRB Composite Index has risen all the way, refreshing the nearly seven-year high, the most important reason is due to the increase in currency issuance and the intensification of inflation. In agricultural products, oils and fats are one of the most financial varieties, in the case of inflation, currency depreciation, the first to hear the wind, follow the trend is the oil.
The chart shows the CRB Spot Composite Index
B U.S. beans fundamentals are bearish or exhausted
This year, there are more variables in U.S. bean production, first the sown area of U.S. beans is lower than expected, driving the price of U.S. beans higher, followed by the continued drought in some major producing states, and the excellent growth rate of U.S. beans has been hovering below 60% in recent years, supporting the price of U.S. beans to hover at a relatively high level. However, in the later period, with the increase of rainfall, the excellent growth rate of U.S. beans improved slightly, and the market began to expect an increase in the yield level of U.S. beans, and the futures price of U.S. beans began to oscillate downward. Due to sluggish exports, the USDA soybean quarterly inventory report figures released on September 30, 2021 were significantly higher than market expectations, and market pessimism continued to ferment. The USDA's monthly supply and demand report in October was adjusted to the point of "no return", far exceeding market expectations. The report not only raised U.S. bean supply for 2021/2022, but also adjusted the production and ending stocks of the past 2020/2021, raising the 2020/2021 U.S. bean yield to 51 bushels/acre, with a total production increase of 80.8 million bushels to 4.216 billion bushels, and ending stocks from 175 million bushels last month to 256 million bushels.
The USDA also raised the 2021/2022 U.S. bean data significantly, with U.S. bean yields in 2021/2022 raised to a high-key 51.5 bushels/acre from 50.6 bushels/acre in the previous month, second only to the 2016 all-time high of 51.9 bushels/acre, with total production rising to 4.448 billion bushels from 4.374 billion bushels last month, and ending stocks rising sharply from 185 million bushels in the previous month to 320 million bushels.
But even so, the price of U.S. soybean futures has not fallen sharply. First, the market has certain expectations for the US Department of Agriculture to raise U.S. bean inventories and yields, and the previous decline has digested part of the bearish impact in advance; second, the market believes that the U.S. Department of Agriculture continues to increase U.S. bean production and end-of-period inventories, after all, the current U.S. bean yield has only been maintained at a low level of 59% in recent years, and the U.S. bean yield has been raised to a historical secondary level of 51.5 bushels /acre; third, although the harvest progress of U.S. beans is lower than expected, the export situation has improved, and potential benefits loom. According to the USDA last Thursday
According to the sales report, in the week ended October 14, the US soybean export sales in 2021/2022 increased by 2.8784 million tons, a significant increase from the average of the previous week and the previous four weeks, significantly higher than the market estimate of 1.5 million to 2.5 million tons; U.S. soybean export shipments of 2.2073 million tons, an increase of 29% over the previous week, a significant increase from the previous four weeks average. As of Oct. 17, the U.S. soybean harvest was 60 percent complete, down from 73 percent in the year-ago quarter and 62 percent expected by the market.
South American soybean yields remain uncertain
Due to the better planting efficiency, the area sown to soybeans in Brazil has increased year by year, and this year is no exception. In mid-September, brazilian soybean sowing began, and this year's Brazilian soybean sowing rate is relatively fast due to the more timely and sufficient rainfall. According to a weekly report by Brazilian consultancy AgRural, as of the end of last week, brazil's soybean seeding rate reached 24.4%, up from 9.2% in the same period last year, the second fastest on record, and the planting area is expected to increase. Market analysts have also raised their forecasts for Soybean Production in Brazil. Among them, the Brazilian National Commodity Supply Company (CONAB) first released the 2021/2022 annual forecast report, showing that Brazilian soybean production in 2021/2022 is expected to reach a record 140.75 million tons, an increase of 2.5% year-on-year. CONAB expects the sown area to reach 39.9 million hectares, an increase of 2.5% year-on-year.
However, Brazilian soybean production does not necessarily increase with the area sown, and planting and growing season weather are crucial for Brazilian soybean production. Due to the smooth wind and rain, Brazilian soybeans have been in full production for several consecutive years, but this year's weather situation is not optimistic. The market expects a high probability of a La Niña climate model this winter and next spring, which could bring drought to Brazilian soybean producing areas and thus affect Brazilian soybean production.
The latest forecasts released by the Center for International Research on Climate and Society (IRI/CPC) based on the status of El Niño, La Niña and Southern Oscillation (ENSO) based on the NINO 3.4 index (120-170W, 5S-5N) show that La Niña has developed, with an 87% probability of La Niña occurring between December 2021 and February 2022, compared with 72% last month's forecast. In addition, the Australian Meteorological Agency upgraded the La Niña Outlook to the La Niña Warning (LaNinaALERT). This means that el-south oscillations are currently neutral, but the likelihood of a La Niña phenomenon has increased to around 70% in the coming months. This change in state occurred after the continuous cooling of the tropical Pacific Ocean towards the La Niña threshold and the increase in trade wind intensity in September. Seven international climate models surveyed by Australia all show that sea surface temperatures in the tropical Pacific Ocean will cool further; all show that the La Niña threshold could occur in November.
At the same time, soybean production in Argentina, another major producer of soybeans in South America, is not optimistic, and the area sown to Argentine soybeans may decline in 2021/2022 due to lower yields from soybean cultivation than other crops such as corn (2612, 27.00, 1.04%). According to a counselor report released by the USDA's Overseas Agriculture Bureau, the 2021/22 Argentina soybean sown area forecast was lowered to 17 million hectares, a 500,000 ha cut from the previous forecast, which could lead to soybean production of 49.7 million tons, 2.3 million tons lower than the OFFICIAL USDA forecast. The main reason for the decline in soybean sown area in Argentina is higher yields from the cultivation of other crops, especially corn.
D Global vegetable oil production is not optimistic
Due to the decline in sown area or weather reasons, the world's oilseed and oil production has not increased much in recent years, and due to relatively strong demand, the inventory at the end of the period has continued to decline, and the inventory consumption ratio has been declining. According to the monitoring, the global oilseed ending inventory consumption ratio in 2021/2022 was 14.4%, down 0.24 percentage points from the previous year, the fourth consecutive year of decline.
The market is expected to be the palm oil accumulation period this year, but due to the impact of the epidemic, the main producing countries have been affected by the lack of labor to affect the harvesting of palm fruits, resulting in Malaysian palm oil stocks have been hovering at a low level. According to the monthly supply and demand report of Malaysian palm oil, due to the severe labor shortage hitting peak production, Malaysia's crude palm oil production did not increase but decreased in September, down 0.39% month-on-month to 1.7 million tons. However, exports rose 36.83% m/m to 1.6 million tonnes, the highest level in the year, resulting in a 6.99% m/m decrease in Malaysia's inventories at the end of September to 1.75 million tonnes. Some experts said that unless production increases in the next two months, Malaysia's total palm oil production may fall to 18.2 million to 18.4 million tons in 2021, down from 19.14 million tons last year. The monthly production and month-end inventories announced in this report are significantly lower than the market expectations of 1.75 million tons and 1.87 million tons, which stimulates the sharp rise in Malaysian palm oil futures prices, constantly refreshing historical highs, and boosting international vegetable oil prices.
Rapeseed and vegetable oil are the third largest oilseed varieties in the world. Canada is the world's largest producer of rapeseed, due to the drought in the main producing areas, Canadian rapeseed production has been significantly reduced this year, making the international rapeseed supply stretched. In September, Statistics Canada projected rapeseed production of 12.8 million tonnes in 2021/2022 based on production models formed using satellite imagery, about 2 million tonnes lower than its august 30 estimate and 34.4 per cent lower than last year and the lowest yield since 2010, as drought in the savannahs caused yields to fall to a decade-low level of just 25.3 bushels/acre, a 39.5 per cent decrease year-on-year, offsetting an 8.1 per cent increase in harvested area. Canadian rapeseed exports and crushing have also been significantly lowered due to lower production, and ending stocks for 2021/2022 have been cut to 500,000 tonnes, a significant decrease of 1.3 million tonnes from the previous year, the lowest level on record. In addition, the supply of rapeseed in Europe is also very tight. French Strategic Grains expects EU rapeseed supply to tighten further in 2021/2022 as imports from Canada fall and eu rapeseed crushing margins are attractive, driving continued demand growth, which will lead to ending stocks falling to a record low of 600,000 tonnes. The inventory usage ratio of 3.9% will also be a record low.
The picture shows the production of rapeseed in Canada over the years
E At present, the domestic oil and fat supply is tight
Due to the low profits of crushing or imports, domestic oil and fat inventories have continued to be at a low level this year, and there has been no significant improvement so far. Recently, due to the suspension of power curtailment in some areas, the operating rate of oil mills is insufficient, soybean oil output is reduced, and soybean oil inventories in oil mills have declined. According to monitoring, the 111 oil mills included in the survey in the 42nd week (October 16-22) soybean crushing volume was 1.6016 million tons, with an operating rate of 56.49%, 191,800 tons lower than the previous week. As of October 15 (week 41), the commercial stock of soybean oil in key areas of the country was 933,800 tons, a slight decrease of 0.48 million tons or 0.51% week-on-week, the lowest level in the same period in recent years.
Due to the continuous inversion of import profits, the enthusiasm for domestic palm oil imports has declined, making the current port palm oil inventory low. According to monitoring, as of October 15 (the 41st week), the commercial inventory of palm oil in key areas of the country was 446,500 tons, a decrease of 64,800 tons or 12.67% from the 40th week, which is also a low level in the same period in recent years. Due to the increase in imported vegetable oil, the stock of vegetable oil in coastal areas is still abundant compared with previous years. According to monitoring, as of October 15, the domestic coastal oil mills vegetable oil inventory was 96,000 tons, an increase of 12,000 tons over the previous week, the highest level in the same period in the past three years. However, due to the lowest proportion of vegetable oil stocks, the overall oil and fat stocks are still at the low level of the same period in recent years.
From the demand side, the fourth quarter of the country to the Spring Festival, generally is the relative demand season for oil and fat, the downstream pickup volume tends to increase, and the price of oil and fat is easy to rise and fall. According to monitoring, as of the week of October 21, the bulk soybean oil transaction of domestic key oil mills was 100,900 tons, an increase of 33,600 tons over the previous week, a significant increase over the previous period.
The sluggish price of meal also supports oil prices to a certain extent. Because the current domestic aquaculture industry is generally sluggish, the profit of the aquaculture industry is meager, the demand for soybean meal (3258, -30.00, -0.91%) is sluggish, and the risk of soybean meal expansion in oil mills increases, which will inhibit the operation of oil mills. On the other hand, oil and meal prices have a certain seesaw effect, and the sluggish price of meal also forces oil mills to increase oil prices to maintain certain processing profits, which is also an important reason for the recent increase in oil and meal prices.
In summary, as South American soybeans enter the key sowing and growth period, South American weather speculation will gradually be put on the agenda, at the same time, in the context of the continuous rise in crude oil prices, oils and fats with the concept of biodiesel will directly benefit, coupled with the current domestic demand season for oil and fat, the technical breakthrough of oil futures is expected to continue to be strong.