Fundamentally Speaking

Most members of the grain and oilseeds complex continue to flounder, weighed under by the realization that, despite weather setbacks, the 2019 U.S. corn, soybean and wheat crop production totals turned out reasonably well. The the ongoing trade wars continue to suppress our overseas sales efforts.

Soybean oil price action has been rather stout however with futures recently establishing new highs for the calendar year. The market has been supported by increased demand for imported vegetable oils from China. Chinese internal production has faltered due to a lower amount of oilseeds being crushed. The ongoing trade wars and the spread of African swine fever has lowered throw on Chinese domestic oilseed crushing.

This has resulted in falling vegetable oil stocks in China at a time when domestic consumption continues to grow. We are also hearing that to replace the "fatty" pork that Chinese citizens love to consume based on very hard to fund and expensive pork supplies, there is an increase in the use of vegetable oils for a variety of fried foods.

The price support includes the surge in palm oil prices reaching their highest levels in more than two years. Support is linked to ideas that dryness in both Malaysia and Indonesia will reduce those country's output of palm oil, which is the most produced and used vegetable oil of all.

This chart shows the global stock-to-use ratio of some key vegetable oils including palm oil, soybean oil, rapseed oil and sunflower seed oil. We also have the total world vegetable oil stock-to-use ratio, which besides the four mentioned also includes coconut oil, olive oil, cottonseed oil, peanut oil and palm kernel oil. The U.S. soybean oil stock-to-use ratio is also included.

This graphic helps explain the upward price action. Note that among other things, the total world vegoil stock-to-use ratio is the lowest since 2007/08, the U.S. soybean oil stock/use ratio is the third lowest since 1983/84 and the world soybean oil stock/use ratio is the lowest ever at 6.0%

(KM)