Since the lows recorded in March and April of this year, the price of oilseeds has not stopped rising. Soybeans in Chicago broke the $ 10 per bushel ($ 367 / t) barrier in the closest contract, posting an increase of more than 20% from April lows. The recovery of the price of commodities and the financial markets has had a marked correlation worldwide, finding a floor over the mentioned months. Various assets have been able to recover their values and even exceed pre-pandemic prices. This was the case of oilseeds and their derived oils. If we look at the prices of sunflower oil and soybean oil FOB spot in Argentina, to date they are trading at 950 and 830 USD / t respectively. Since April lows they have marked an increase of 50 and 42%, respectively. In particular, the price of sunflower oil has reached 6-year highs, similar to what is happening in European markets. The price of soybean oil, for its part, reached the levels that existed before the pandemic and stands at 3-year highs.
In detail, the price of sunflower oil has surpassed the level it reached before the pandemic for various reasons. The specific causes were the following:
• Lower sunflower production is expected in the Black Sea countries. Ukraine, the main producer worldwide, is advancing with the sunflower harvest in 36% of the area. According to Agritel data, the yields reported in this area reach 1.75 t / ha, 20% below the yield from previous campaigns. The lower supply in the Black Sea region adds to lower sales by farmers on the spot market, helping to push international prices higher.
• The lower 20/21 production expected from Argentina also conditions the increase in the international sunflower price, since it is the third world producer (far behind Ukraine and Russia). The lack of humidity drastically reduced the sunflower area in the NEA, therefore, at the national level, the initial projection of planting intention was sharply cut by more than 300,000 hectares to reach 1.4 M ha.
The common causes of the recovery in the price of oilseeds and commodities in general were:
• Increase in the price of Brent and WTI oil. After the Brent had registered values between 19 and 20 dollars in the months of March and April, the prices registered a marked recovery of up to 20 USD. The correlation in the price of oil and vegetable oils is evident as they compete as a raw material in the fuel market. A particular case occurred in the price of WTI futures when they traded in negative territory. After this abrupt decline, they strongly recovered their value to position themselves at approximately 40 USD a barrel. Both the price of Brent and WTI were above 55 and 52 USD, respectively, before the COVID-19 crisis, therefore its recovery is still below pre-pandemic levels and does not explain all the increase in the prices of vegetable oils. The rise in oil was influenced, among other factors, by the reduction in supply by OPEC + to reduce the increase in world inventories due to lower demand for land transport and commercial aircraft.
• Purchases from China in the commodity markets. By 2021, the main engine of economic recovery, according to the IMF, is expected to be emerging countries, mainly China and India. The former has been entering the commodity markets with heavy purchases of oil, soybeans, sunflower oil and various cereals, which has boosted prices after hitting lows as a result of the “sell-off of the pandemic”.
• Lower stocks of oilseeds expected in the world by the end of the 20/21 season. China’s greater purchases of oilseeds would allow in this new 20/21 season, to reduce stocks globally, improving the price outlook for both soybeans and sunflower. According to USDA data, final soybean stocks are expected to end at 93.5 Mt, falling 2.5% compared to the previous season. This level of stocks would be at levels similar to those registered in the 16/17 campaign.
• Increase in monetary issuance by the world’s main economies. In this, the issuance of the United States plays an important role since, to alleviate the effects of the quarantine and the loss of jobs in much of the country, it has decided to face a highly expansionary monetary and fiscal policy by increasing the budget deficit and financing the same with monetary issue. Due to the increase in the monetary aggregates of that country, and the rest of the economies that follow the same measures, an increase in global inflation is generated in the medium term. Financial markets have anticipated these effects by increasing the price of publicly traded companies around the world. In a second instance, commodities they could follow this trend. The main saver of dollars in the world, China, as a result of its trade surplus, has entered the commodity markets with heavy purchases, since if inflation is expected to rise from now on, it is much more rational to save on goods than on constant sounding dollars or United States treasury bonds that trade at very low rates. An example of this case are soybean imports for the 19/20 marketing season, which are estimated at a record 98 million tons.
These last factors are the ones that are hitting the soy market the most. In this segment, the probability of the occurrence of La Niña for this summer, in the Southern Hemisphere, could cause adverse conditions for our crops in our country and in some regions of Brazil, which would decrease the global supply of soy.
Despite all these factors, in the last two weeks volatility began to be felt in the price of oilseeds and in financial markets in general. Among other causes, it is due to the outbreaks of COVID-19 that occur in many parts of the world, which is currently called “the second wave” and the least hope of a timely arrival of a vaccine against this virus. This makes recovery expectations more pessimistic, since in this scenario the restrictions imposed on the movement of people and activities could be maintained for a longer time, damaging the level of world activity.