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INSIGHT - Not all biofuel feedstocks are equal

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The plunge in oil prices, which as of Wednesday’s close had sent Brent crude futures down nearly 14% in August, has boded ill for values of ags used in making biofuels.

 

It is no coincidence that raw sugar futures were down more than 7% over the same timescale.

 

Weaker crude futures bode ill for gasoline values, in turn lowering prospects for ethanol, and meaning that sugar needs to compete less hard for price for its share of the cane crop in the likes of Brazil.

 

But prices of vegetable oils, the raw material for biodiesel, have not been hit nearly so hard.

 

Chicago soyoil futures for December stood up 0.5% over the first week of August, with palm oil up 1.6% (and gaining a further 1.5% in late deals on Thursday, to hit a three-month high).

 

Indonesia worries

Vegetable oil prices have been reflected in part by worries over dryness in Indonesia, the top producer of palm oil.

 

Oil palm trees are notably vulnerable to weather changes, and indeed can only be grown geographically in a narrow band around the equator.

 

Maxar noted that over the past week or so “dryness increased further, particularly across central and southern Sumatra, southern and eastern Malay Peninsula, and southern and western Kalimantan.

 

And with these areas set for further below-normal rainfall levels, “dryness and stress will increase further on the palm crop

 

‘Vegoil supplies could naturally tighten’

However, the buoyancy also reflects hopes that China may ditch quotas on imports of the two vegetable oils, as well as rapeseed oil.

 

As Terry Reilly at Chicago broker Futures International said, “China’s slowdown in oilseeds crushings since late last year may have threatened the security of vegetable oil supplies.”

 

China’s reduced oilseeds crush stems in the main from the large decline in its hog herd prompted by African swine fever, meaning less demand for oilseed meal used in feed.

 

“In addition, India has been a big buyer of vegetable oils, resulting in import competition.

 

“Add these to the short rapeseed crop in the European Union and increases in biofuel mandates across the world and global vegetable oil supplies could naturally tighten by the end of 2019-20.

 

“So, it’s not surprising to see some countries secure vegetable oil supplies for the upcoming crop-year.”

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