Political uncertainties, weather likely culprits in 2016 commodity pricing moves
Bearish. Slow growth. Subdued demand. Political uncertainties. Security threats. All descriptors commonly used in anyone’s outlook of the 2016 global economy. With significant weather patterns (El Niño) added in the mix, it will be an interesting year for our feedstock commodities. With volatility in oil prices, very little can be taken for granted in today’s markets and nothing is out of the line of sight. Keep in mind, from a relevance standpoint, many of these fats and oils are trending near their six-year lows, so theoretically, no additional significant downslides are expected.
Tallow – BFT (Renderer) moved upward in the early days of February and should remain relatively stable over the next few weeks assuming no major outside influences come to play as it is now in line with historical corn and soya price models. While there is some talk of snugness in the marketplace, slaughter rates have resumed somewhat normal rates (albeit still down from historical rates) and stockyards are beginning to build inventories. Assuming nothing unexpected, the high 20s/low 30s will be the new region of stability for tallow until any of the four various demand sectors witness any substantial growth.
Soya – Globally, stocks are still at or near historical highs but the recent weeks in the market have shown a little perkiness based on the biodiesel mandates and some talk of El Niño in South America. The upcoming South American harvest data will be our next big opportunity to gain insight into the Q3 and Q4 price outlooks. In addition, the new political leadership in Argentina as well as the soybean meal/oil balance issues will play roles as well in this outlook.
Soya is used in Univar’s polyunsaturated fatty acid products.
Palm – The new year has brought a steady increase to this market – plenty of reasons and support – but mostly built around El Niño and the decreased oil palm output. This weather system causes dryness in the region and thus lower fruit production. The result is lower stock levels and the market runs upward. Certainly, the Chinese New Year always affects the demand equation in January as well. Now with the Malaysian Palm Oil Conference looming in early March there is plenty of support to keep prices on the high end until the technical side can weigh in more heavily. But unless this El Niño pattern is a lot worse than expected, and given the present positioning of soybean, CPO isn’t likely to remain at its current price level of 2,400 + RM very long. With the overall global economic situation remaining bearish, this is a simple supply/demand equation longer term and we’re clearly in an over-supply situation. On the demand side, the ability of the Indonesian government to effectively increase its internal consumption through higher biodiesel percentages (B10/B20) will be closely monitored.
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Palm Kernel/Coconut – PKO is up almost 12 percent in recent weeks and CNO has had no problem following it upward. Most industry experts would argue there is not a true identifiable reason behind these moves so it will be quite interesting to see if they can hold steady beyond the aforementioned POC. Certainly the gap in PKO and CPO isn’t likely to remain long term at current levels.
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