Buckle up, 2021 has plenty to trade - Matt Ammermann




2021 continues keeping the operators of the global oilseed market on their toes: high price volatility on the key markets, a record soybean harvest in Brazil in the midst of not so optimistic position of the US, continued “nervousness” due to the COVID-19 pandemic and a quiet tough world balance.

Who will become the main price-maker on the oilseed market this season? Will the 2019 scenario repeat itself and will ASF outbreaks in China turn to a major problem? How will the markets of key oilseeds and by-products in the second half of the season? These and many other issues we discussed with the Vice-President of StoneX Group,  Matt Ammermann.


- Currently, the oilseed market is at the midst of events: weather problems in the top producing countries, tough global balance as well as high price volatility. How can you characterize the current situation on the oilseed market in the key countries?

- Yes, correctly stated - the soybean market remains with high volatility. It all started with a slight disappointment with yields in the U.S. for the 2020/21 crop year. This all occurred as China demand was slowly waking back up as well, as they looked to fulfill Phase 1 commitments. With the increased demand this pushed U.S. carroyout to historically tight levels, stocks and stocks to use ratio remains at the lowest point seen since 2013 but also near levels that have been seen only a few years going back the past few decades.

This steadily pushed prices higher and pushed a strong incentive for the Brazilian farmer to plant record areas as well. This was realized, and now the market greets a record Brazil soybean crop of 134 mmt, but it should be noted China demand has been expecting this so the record supplies are not felt in the global markets like you think they would. March and April will likely find record export flow from Brazil.

Brazil has its fair share of weather issues this growing season as well, but at the end of the day, record supplies remain. Argentina was highly influenced by La-Nina this year, and this produced dry/warm conditions, which pushed production lower year over year. The market assumes a crop of 44-46 mmt vs 49 mmt last year. We must remember Argentina remains the world’s largest soybean oil and soybean meal exporter, thus when they have production issues the world feels it. With all this said, global vegoil demand increased dramatically due to COVID-19 as we all ate at home, and now with the expectations of increasing biofuel demand given the ‘Green initiatives’ by President Biden, the demand profile of vegoils continues to look very promising. In early April, the USDA gave us their first look at new crop soybean plantings in the U.S. The market was expecting to see 90 mln acres, but 87.6 mln was reported. This still a big number, the 3rd largest on record and remains vs 83.1 mln last year and vs 90.1 mln in 2017 and 89.2 mln in 2018, but the market needs to alter the economics to get more plantings. All this to say, with the continued vegoil demand, as well as China demand that remains back on the table, the world needs to see an increase in oilseed plantings for 2021/22 and this will require mother nature to cooperate with us all as well. Any further weather issues will create more volatility.


- What can you say about the position of US soybeans on the world market, given that the USA cut soybeans exports in February due to stronger competition from Brazil? What should market operators expect in the near future? What will be the key price-determining factors?

- Right now given the time of year, demand is fully focused on Brazil origin given their harvest is nearly complete now - as stated above March/April should see record export flow in Brazil. Due to the tight supplies in the U.S., there remains only so much to export - the market has to limit that. As of right now, we are nearly at 100% of the USDA export estimate, with 5 months left in the marketing year. Clearly the market has to figure this out, as the USDA is already portraying minimum stock levels of 120 mbu - some think that the USDA does not go lower than that and that they require the market to do its job to achieve their current demand estimates in both exports and crush. So if the U.S. continues to see shipments go out, the market at some point should encourage U.S. imports or export cancellations, and this would be achieved via a wider U.S.-Brazil price spread.


- There are new cases of ASF in China, thus the demand on soybean meal declines. Do market operators wait for lower import demand from China on soybeans? Or this problem is temporary? What are the prospects of soybeans import to China this year?

- Yes this is true, the northern providences are experiencing an increase in ASF rates and this remains a topic to be watched closely as we all remember the ripple effects that 2019 had on global trade. Right now it’s still hard to understand the severity of it, and I think the market remains cautious of becoming too bullish because of this. One thing should be noted, many in China tend to agree that the industry learned from 2019 and are now in a better position to manage it, so for now the trade walks cautiously and hopes it does not continue to spread south. Current import prospects for China remain 100 mmt for 2020, this a fresh record. 2021 estimates remain 100-105 mmt. Years past it has been a steady climb year-on-year, with the sharp reduction only in 2018 to 83 mmt.


- Since the beginning of this year, prices of vegetable oils have been growing notably on the world market in general and on the market of South America in particular. What factors, except the low domestic supply of soybeans, resulted in growth of soybean oil prices in Brazil and Argentina in the first quarter of this year?

- I think I covered this in question #1 - yes it was the low supplies of soybeans and the rapid pace of exports that pushed less seeds available to crush in Brazil. Soybean oil exports in Brazil exceeded 1 mmt last year, when the market initially was expecting around 300 kmt - a factor here remains a favorable FX rate that incentivizes exports. In Argentina, I would add that due to FX rates, the farmer has been a very slow seller, making it hard for crushers to get the supplies they need, and thus the need to increase prices. Also, the increased global demand via COVID stay at home orders kept vegoil demand strong. As stated above, the expectation of biofuel demand helped push prices higher as well.


- Have you noticed any changes in the distribution of soybean oil in these countries? Have there been any changes in export destinations? Which countries are the main importers of South American soybean oil?

- The main buyers of Brazil soybean oil remains India, China, and Bangladesh, which didn’t alter much vs 2019 comparisons. For Argentina, main buyers were India, China Bangladesh and Peru, all very similar to 2019 as well.


- To what extent can the biodiesel market grow in Argentina and Brazil? In this regard, how can the demand for soybean oil change and will there be enough supply of domestically produced soybean oil to meet internal demand?

- In 2021, the biodiesel blend is 13% in Brazil and should reach 15% in 2023. The soybean crush should increase. Brazil has capacity, and can use other feedstocks too. I don’t expect a short supply, as last resort Brazil would consider vegoil imports to help feed the need. In Argentina, the growth of the use of biodiesel will largely depend on political support, of which right now is currently limited. Regarding domestic supply, I don’t expect any shortage in Argentina.


- What are the prospects for the development of sunflower oil market in Argentina? How competitive is it on the global market? Will sunflower oil prices continue to rise, given that the sunflower seed crop in Argentina may decline to 2.9 mln tonnes in 2020/21 MY against 3.2 mln tonnes in 2019/20 MY?

- Right now it seems Argentina remains competitive due to the production issues/high prices seen in Black Sea right now. Moreover, the current restrictions to make sure enough supplies remain for the domestic markets in Ukraine and Russia continues to elevate global prices and as a result, Argentina prices have been able increase rapidly in late 2021 and into 2021.

Right now, it does appear Black Sea is running out of old crop supplies, so this should favor Argentina origin moving forward, because of this expect Argentina prices to remain well supported as well. Like I stated above as well- Argentina remains highly influenced by FX, and right now this continues to push reluctant farmer sellings.


- In your opinion, is the currency factor still among the key ones?

- This influence continues to remain- as long as the world continues to trade in USD, it always will be. This remains an important factor to remember, in that not only does higher U.S. prices push U.S. farmers to plant more, but also pushes non- U.S. producing nations to do the same, and a weakening FX only intensifies that.


- What should we expect from the key markets of oilseeds and by-product in the second half of the season? What main factors will influence the prices?

- The main factor remains U.S. plantings given the recent report by the USDA and how tight this can keep the new crop S’D’s. Given this tightness, U.S. Midwest weather will be highly scrutinized. Also EU and Black Sea sunflower seed plantings need to be watched to see how big of increase can be realized. The return to normal per COVID remains a key demand factor, as is China demand and the thought of ASF slowing demand prospects. Biden’s infrastructure bill and the impending biofuel benefits need to be monitored as well. Buckle up, 2021 has plenty to trade!


Interviewed by Polina Kalaida