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Sunflower oil prices hit twelve-year high on high demand, lower supply

March 15, 2021

2 mins read

Spot Sunflower oil prices have hit twelve-year highs due to a near-perfect storm of continuing market and fundamental factors. Lower and poorer quality sunseed supply, high prices within the edible oils complex, dwindling seed supplies due to forward selling of oil, and lack of sunoil coverage have fuelled the rally over the past several months. The Mintec Benchmark Price (MBP) for Sunflower Oil FOB Northwest Europe with a six-port option was assessed at $1,734.50/mt on 15 March 2021, up $415.50/mt since the beginning of 2021. Similarly, the MBP for Sunflower oil FOB Ukraine has also reached a twelve-year high as it was assessed at $1,660.50/mt on Friday 12 March, up 29.6 per cent since the beginning of the year.

Prices have been moving higher on poor fundamentals and strong demand, however participants have been expressing concerns that the market may be overheated. Price action since Thursday (11 March) suggests that the market may have hit a new resistance level – in the words of one trader, prices cannot continue at current levels, and will have to break if buyers are going to return and maintain the upwards momentum, otherwise those buyers will have to make do with the supplies they currently have in order to avoid buying on the nearby. Indeed, the Mintec Benchmark Price was assessed down $36/mt since the assessment on Thursday.

 

The background

Early in the season in July, before the crop was harvested, large amounts of sunseed and sunoil were forward sold owing to generous crop estimates of some 16 million tonnes from Ukraine alone. However, in November 2020, new figures provided a more bearish view on production, with market participants beginning to assess the 20/21 crop at around 12-13 million tonnes due to extended periods of dryness in the Black Sea during the growing season in the spring and summer. As a result of the dryness, quality was also impacted, with traders out of Ukraine commenting that the crop was, ‘much poorer quality than normal,’ and that the, ‘oil content of the seed is low’.


The lower supply of sunseed and forward selling of sunoil caused significant issues for sunseed buyers. Exporters struggled to purchase seed at market levels, with increasing bids driving prices higher. Refiners during the period were similarly struggling, unable to get seed into crush, and when they did manage it was ‘of poor quality’ needing more seed to produce the amount of oil required. The MBP for Sunflower Oil FOB Ukraine reached $1,190/mt on 11 November, which was up over $210/mt since harvesting started in late August. This compares to a price decrease of $30/mt and $70/mt over the same periods in 2019 and 2018.


The high price of sunflower and other edible oils in late 2020 drove many market participants to wait to consign. This meant that they did not buy forward for 2021 as they normally might. The knock-on effects were profound at this stage as some of these participants waited as long as possible and were forced to buy at increasingly higher price levels. A consensus formed that supply is unlikely to recover until then. To highlight this point further, one trader said at the time: ‘it is a long, long time until the new harvest, [and] with the minimal supply who knows where the price may go’. However, it remains to be seen if recent price declines might upend that consensus. The sunflower market continues its volatile path.

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