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How opposing Argentine, EU forces are distorting oilseed markets

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The EU and Argentina between them are ensuring a stark difference in the performance between soymeal and soyoil futures.

 

Chicago soymeal futures for March have risen by nearly 4% so far in 2018, including a 0.2% gain to $329.20 a short ton as of 08:45 UK time (02:45 Chicago time) on Friday, thanks to the worries over dryness in Argentina, the top exporter of the feed ingredient.

 

“Northern Argentina has turned wetter but southern regions are turning drier,” said Benson Quinn Commodities

 

“With Argentina the number one exporter of soymeal in the world, a smaller soybean crop outlook has supported the US meal market on possible shifting demand.”

 

Palm factor

 

Argentina is the biggest exporter too of soyoil, the other main product made when soybeans are crushed.

 

However, the vegetable oil has far underperformed its fellow processing product, falling by 2.8% so far in 2018 for Chicago’s March contract, despite a 0.3% recovery to 32.32 cents a pound early on Friday.

 

Soyoil’s declines reflect a number of factors, including US industry crush data for last month which showed far bigger US stocks of the oil than had been expected, and uncertainty over whether US lawmakers will indeed pass a fresh biodiesel tax credit.

 

However, also looming large has been pressure from prices of rival vegetable oil palm oil, which has suffered from a European Parliament vote to phase it out of European Union biofuels output by 2021.

 

Waste instead

 

The ban is expected to result in the loss of some 3.5m tonnes of palm oil, with the EU importing 7.0m-7.5m tonnes of the vegetable oil a year, of which nearly half is used for making biofuel.

 

(Palm oil is also a popular food ingredient.)

 

And while in theory the ban could see some of that demand spread to other vegetable oils, such as soyoil or rapeseed oil, there are ideas that broader European scepticism over crop-based biofuels may negate that.

 

“We understand the vacuum left by palm biodiesel is unlikely to be filled by other food crop biofuels like soy biodiesel or rape biodiesel as the EU wants to promote the growth of sustainable advanced fuels such as waste-based biofuels,” said Maybank Securities.

 

Soybeans vs rapeseed

 

With soybeans heavier in meal than oil, for them, the Argentine worries have trumped the concerns over the EU.

 

And March Chicago soybean futures stood a further 0.3% higher at $9.75 ½ a bushel in early deals, taking headway so far in 2018 to 1.4%.

 

By contrast in rapeseed, relatively heavy in oil, Paris futures for May have dropped by 1.4% so far this year, albeit with the euro-denominated contract showing a marginal increase once euro strength against the dollar is taken into account.

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