Oilseed market price analysis: strong demand drives prices up
In the week ending November 25, 2016, global oilseed prices mostly rose, extending the gains of the previous week. The U.S. Environmental Protection Agency raised its 2017 biofuel consumption target, boosting U.S. soybean and soybean oil futures sharply, while soybean export demand remained strong. The sharp depreciation of China's renminbi triggered a surge in China's soybean and processed product markets.
However, the continued strengthening of the U.S. dollar, the completion of the U.S. soybean harvest, improved market supply, and favorable weather in South American agricultural regions with clear production prospects limited the price gains.
On Friday, the actively traded January 2017 soybean contract on the Chicago Board of Trade (CBOT) rose 22.25 cents from a week earlier to close at 1016 cents per bushel. Due to Thanksgiving, there were no U.S. Gulf quotes on Friday. On Wednesday, the barge quote for U.S. No. 1 yellow soybeans in the U.S. Gulf was 1058.75 cents per bushel, up 35.5 cents from the previous Friday's price. The January rapeseed contract on the Intercontinental Exchange (ICE) rose 13.7 Canadian dollars from a week earlier to close at 528.20 Canadian dollars per ton. Argentine soybeans on the Up River were quoted at 395 U.S. dollars per ton, up 16 U.S. dollars from a week earlier, FOB. The January 2017 soybean contract on the Dalian Commodity Exchange closed at 3,812 yuan, up 106 yuan from a week earlier.
On Friday, the U.S. dollar index closed at 101.546 points, up 0.3% from a week earlier. This week, crude oil futures on the New York Mercantile Exchange rose slightly, with prices showing a pattern of sharp fluctuations. Although the market increasingly believed that major oil-producing countries could reach an output cut agreement at next week's meeting, Saudi Arabia claimed this week that it would not attend the talks with non-OPEC member countries next Monday, creating uncertainty over whether OPEC member countries could reach an agreement on the production cut plan. The U.S. dollar exchange rate remained strong, adversely affecting oil prices. At Friday's close, the light crude oil contract for January delivery closed at 46.06 U.S. dollars per barrel, up 13 cents from a week earlier.
The biggest bullish factor for the oilseed market this week was the renewable fuel consumption target released by the U.S. Environmental Protection Agency (EPA) on Wednesday. The EPA set the 2017 renewable fuel consumption target at 19.28 billion gallons, higher than this year's 18.11 billion gallons, of which conventional biofuel consumption was set at 15 billion gallons (ethanol produced from corn), and advanced biofuel consumption was set at 4.28 billion gallons (including biofuel made from soybean oil). This news drove soybean oil prices sharply higher, which in turn boosted the soybean market. The EPA's target will increase soybean oil consumption and may cause U.S. soybean oil supplies to tighten. The U.S. Department of Agriculture currently estimates U.S. soybean oil ending stocks for 2016/17 at 1.658 billion pounds.
The U.S. soybean harvest has been fully completed, and while market supply has improved, U.S. soybean export demand remains strong. According to the weekly export sales report released by the U.S. Department of Agriculture, in the week ending November 17, 2016, U.S. net soybean sales for 2016/17 were 1,898,600 tons, 35% higher than the previous week and 11% higher than the four-week average. So far this year, total soybean export sales have reached 40.3701 million tons, up 26.3% from the same period last year.
In China, after the Chinese government introduced measures last week to curb speculation in the futures market, China's soybean and processed product futures markets strengthened again this week, due to the weak renminbi exchange rate. Although the renminbi's decline slowed this week because the Chinese government set a limit on the exchange rate fluctuation range, the renminbi was still very weak compared with two weeks earlier. As the exchange rate slid, speculators poured into the commodity market to go long.
In South America, agricultural expert Dr. Mike Cordonnier released a report stating that as of last Friday, Brazil's soybean planting was 77% complete, compared with 70% in the same period last year and a five-year average pace of 76%. Overall, Brazil's soybean crop conditions have been above average. Weather in central and northeastern Brazil remains favorable for crop planting and early growth. At the same time, although in the past few months international soybean prices have been sluggish and production costs high, the Brazilian real has strengthened, and opportunities to lock in profits have been limited, Brazilian farmers have been slow in selling 2016/17 soybeans. However, the situation has now changed, and farmers have begun to pre-sell more new soybeans. The Mato Grosso Institute of Agricultural Economics (Imea) said that as of early July, farmers had pre-sold only 27% of the new soybeans, and most of the new soybeans were sold to grain companies in exchange for needed production inputs. From July to August, the pre-sale ratio increased by only 2%, and then from October 1 to November 14 it increased by 8%, with most pre-sales concentrated last Thursday and Friday, when the Brazilian real depreciated against the U.S. dollar. However, despite the recent acceleration in sales, the pace of new soybean pre-sales still lags behind the same period last year. So far, the pre-sale ratio for new soybeans is 36%, lower than 53% in the same period last year.
In Argentina, as of the end of last week, soybean planting was 24.2% complete, up 13% from a week earlier, compared with 32% in the same period last year and a five-year average pace of 33%. Weather forecasts show that Argentina may experience drier weather. The short-term dry weather is beneficial because it will allow farmers to speed up spring planting, but the dry weather could soon cause problems. Dr. Cordonnier believes that if the dry weather lasts another week, it may begin to become worrying.