Refined Oils Weekly Wire 04/27/2012 The following is provided for informational purposes only and is not a recommendation to buy or sell a commodity. Much of this information is derived from sources that are believed to be reliable, but we cannot give any assurance or guarantee as to its accuracy or completeness. Commodity trading is inherently risky and actual market results may vary significantly from the following. You are cautioned not to place undue reliance on this information.
Bears Bulls The EPA reported that over 107 million gallons of biodiesel were made in the month of March, up significantly from the 77.7 million made in February. If we take the three month average rate and extrapolate it out for the rest of the year, the biodiesel industry should be on pace to hit the billion gallon mandate. This means there should be fewer large spikes in biodiesel production this that would send soybean oil prices into a frenzy. Meal exports at 221,100 mt were down last week from the previous week, but still up 38% from the four week average. Strong meal exports will incentivize US crush, and thereby increase oil supply. Q1 US GPD at 2.2% came in below expectations of 2.5%, and below previous growth of 3%. This is a troubling sign for some that the economy is entering another spring slowdown which would hurt overall US demand. Argentine soybean crush is reportedly down 11.5% from a year earlier in March at 2.437 million metric tonnes. Lower South American crush could send product demand to the US. The Spanish Government has signaled their intentions to produce all of their domestic biodiesel needs from locally produced methyl ester with locally produced vegetable oils and fats. While some analysts like oil world doubt this is possible, initially it could cap demand for veg oils from outside the EU into Spain. There is thought that Argentina s nationalization of YPF, Respol s (now former) subsidiary in Argentina, will cause Spain to look elsewhere for both Methyl Ester and feedstock. One place they are thought to be looking is the US for soybean oil, which would be an unusual flow for the US. Spain imported about 886,000 tonnes of soy methyl ester from Argentina last year, all of which will now halt in response to Argentina s nationalization. Oil World cut their Argentine soybean production estimate by 1.5 million tonnes, now at 42.5 million. Oil World cited further drought impacts as the reason for yet another cut. Furthermore, Oil World warned that soybean crop estimates in South America have not yet stabilized, leaving the door open for further cuts. Soybean export sales were 962,200 metric tonnes last week, up from the prior week and the four week average. High soybean exports will force up the price of soybeans in the US as crushers compete to buy the beans before the leave the country. So even if there is higher crush, soybean oil prices could be pushed higher due to bean exports. The Buenos Aires Grain Exchange cut their soybean production forecast for Argentina yet again. The new cut was 1 million tonnes, putting total production at 43 million. It was announced on Friday that exporters sold 110k tonnes of soybeans, and 120k tonnes of corn were sold to china (beans 12/13, corn 11/12). In addition, 116k tonnes of beans and 1.44 million tonnes of corn were sold to unknown destinations, both for the 12/13 crop year. At 1.56 million tonnes, yesterday marked the fourth largest single day corn sale.
May Soy Oil (BOK) May oil prices have been very stagnant over the last two weeks as they have been in a tug of war between surging bean prices and falling oil share. Soybean oil wants to rally with beans, but intense spreading between meal and oil as traders recognize meal s potential to carry crush this year has limited oil s ability to appreciate. It looks like BOK has support right under 5500, but resistance is unclear and largely dependent on what beans do. My likely range is between 55 and 57 cents for the next week for the July board since May s delivery period starts Monday.. 3
May Oil Share (Black), July Oil Share (Blue) Oil share broke below 40% this week for the first time since September 2009 as the South American soy crop continued to shrink by most estimates. Shrinking production and crush estimates in South America are going a good job of tightening the world meal balance sheets, which have sent meal prices up over 25% in the last 8 weeks. 4
Oil Share & Board Crush Analysis Scenario 1) Bean exports pick up, prices rally, and crush margins contract. Oil share stays relatively the same (July board crush is currently around 61 cents). July Beans Soy Oil Meal Contract 1550 56.9 445.2 Per Bushel 15.5 6.259 9.7944 Board Crush 0.5534 July Price/100 lb Price/lb Cash Price/bushel Oil 55.95 0.5595 0.5595 6.1545 Price/short ton Price/lb Cash Price/bushel Meal 425 0.2125 0.2125 9.35 Oil Share 39.69% Scenario 2) Meal exports pick up instead of beans, and crush margins expand. Oil share declines. Beans stay relatively the same as lower export demand is offset by increased demand from crushers. July Beans Soy Oil Meal Contract 1500 49.95 463.86 Per Bushel 15 5.4945 10.20492 Board Crush 0.6994 JULY Price/100 lb Price/lb Cash Price/bushel Oil 49.95 0.4995 0.4995 5.4945 Price/short ton Price/lb Cash Price/bushel Meal 463.86 0.23193 0.2319 10.20492 Cash Oil Share 35.00% 5
Soybean Oil Commitment of Traders- Non-Commercial Funds Net Position Summary: Soy complex +7,555 (OI +44,274), beans +1,255, meal +6,902, oil -562 It looks like the soy complex found another buyer last week. The non-commercial net long in futures and options in the soy complex increased by 7,555 contracts last week, and open interested increased by 44,274 contracts. A couple of notes. Funds have now increased their net long every week since Jan 31 st, although this past week showed the smallest net increase since then (and the magnitude of the increase has declined the last two weeks). Soybean oil specifically; funds reduced their net long for the first time in nearly two months, and open interest declined by 4,757 contracts. Meal on the other hand saw the largest net increase in the complex, with funds adding 6,902 contracts to their length (read selling oil share ), 6
Soybean Oil Spreads May 12/Jul 12 37 point carry Jul 12/Dec 12, 79 point carry Old crop spreads tightened a bit this week, with May/July rallying to -37 on Friday. However this is likely a bad indicator as May futures are going into delivery next week, and large fund buying probably meant order flow in the front was pushing up spreads. July/Dec has been more telling, falling as low as -80 this week. Likely pressuring july/dec is the prospect of a larger than expected, and earlier than expected, crush. 7
Soybean Oil Seasonal- April to July 31 st The current seasonal implies that BOK is below the trend line by about 80-90 points. So far BOK has been under the trend since April 14 th. 8
USDA National Ag-Energy Round Up- April 20 th, 2011 9
Heating Oil-Bean Oil (HOBO) Spread The higher the spread, the more incentive biodiesel producers have to use soybean oil to make methyl esters 10
EPA Biodiesel Report The EPA reported this week that the US produced 107.78 million gallons of bidoiesel in March. This is up from 77.5 million in February, and 63.5 million in January. March 2011 production was just 70.12 million gallons. The Q1 average rate implies that the US will produce 995 million gallons of biodiesel this year, basically meeting the mandate for 2012. After this was announced RIN prices fell by about 4-5 cents/rin as producers realized they didn t need to run as hard as March to successfully meet their obligation without overproducing (over production of methyl esters forces the price down considerably since only a certain amount of biodiesel made in one year can be used to meet the mandate in the next year). If you keep the March rate the same for the rest of the year, the US will produce 1.219 billion gallons this year, well above the mandate. 11
Corn Planting Progress 12
Soybean Planting Progress 13
US Forecast: 6-10 Day Outlook from NOAA Probability of above or below normal Precipitation Temperature 14
NOAA Precipitation Analysis Past 14 days percent of normal precipitation 15
Brazilian Real If 1 USD can buy more Brazilian Reals, it means the Real is weakening, thereby increasing export competitiveness for Brazil 16
Chinese Imports Chinese Imports Q1 '12 Q1 '11 Pct Chg Palm Oil 1,411,653 860,000 64.15% Rape Oil 228,553 173,158 31.99% Soy Oil 314,345 300,000 4.78% Rape Seed 777,516 179,266 333.72% Chinese palm oil and rapeseed oil imports were both up significantly in Q1 2012, but the real shocking number was their rapeseed imports up 333.72%. While this number was expected to be huge, it really does highlight their domestic rapeseed production deficit, and it doesn t look like their imports will slow down any time soon. This doesn t bode well for rapeseed prices as they face huge competition from both export markets and Canadian crush. 17
Canola Notes One ripple effect from Argentina s nationalization of YPF could be an increase in European rapeseed oil prices. Since Spain effectively shut off a supply of nearly 900k tonnes of methyl ester from Argentina, they will likely incentivize domestic production of biodiesel with rape oil being the largest domestic feedstock. Statistics Canada reported on Tuesday that farmers expect to plant 20.4 million acres of canola this year, well above last year s record of 18.9 million. Viterra had estimated previously that Canada would plant between 21 & 22 million acres, and the average market estimate going into the report was for 20.6 million. If this holds, it will be the sixth year in a row where farmers planted a record amount of canola. China s National Grain and Oils Information Center said this week that China s rapeseed imports could exceed 2 million tonnes in 2012, compared to the 1.26 million in 2011. They also said their rapeseed oil imports could reach 1 million tonnes vs. 550k mt in 2011. Canola crush for the week ended April 25 th was 149,089 metric tonnes, up 5.2% from the previous week. Capacity utilization was 89.7% compared to year ago utilization of 84.7%. 18
Statistics Canada 19
Canadian Prairies one month departure from average precipitation 20
January Canola Board Margin & January Rapeseed (Orange) 21
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Enhancing lives by improving the agribusiness and food production chain 23