Oilseed price market analysis: strong demand and rising price

Global oilseed prices rose mostly in the week ending November 25, 2016, extending last week's rally. The US Environmental Protection Agency raised its biofuel consumption target for 2017, boosting US soybean and soybean oil futures, while demand for soybean exports remained strong. The sharp devaluation of China's RMB has triggered a surge in the market for soybeans and manufactured goods in China.

However, the exchange rate of the US dollar continues to strengthen, the US soybean harvest is over, the market supply has improved, the weather in agricultural areas in South America is good, and the yield outlook is bright, restricting price increases.

On Friday, soybeans in January 2017, which were actively traded on the CBOT, were up 22.25 cents from a week earlier to close at 1016 cents a bushel. There is no quotation for the Mei Wan area on Friday because of Thanksgiving. On Wednesday, the barge for Meiwan No. 1 yellow soybeans was quoted at 1058.75 cents a bushel, up 35.50 cents from Friday's price. Intercontinental Exchange (ICE) January rapeseed rose about C $13.7 from a week ago to close at C $528.20 / tonne. Argentine soybeans are quoted on the spot at $395 a tonne, up $16 from a week ago. The soybean period of Dalian Commodity Exchange closed at about 3812 yuan in January 2017, up 106 yuan from a week ago.

On Friday, the dollar index closed at 101.546 points, up 0.3 per cent from a week ago. Crude oil futures rose slightly on the New York Mercantile Exchange this week, with prices fluctuating violently. While markets are increasingly confident that major oil producers will be able to reach an agreement on production cuts at next week's meeting, Saudi Arabia said this week that it would not participate in talks with non-OPEC members next Monday, making it uncertain whether OPEC members can reach an agreement on production cuts. The exchange rate of the dollar remains strong, adversely affecting oil prices. At Friday's close, light crude for January delivery closed at about $46.06 a barrel, up 13 cents from a week ago.

The biggest bullish factor in the oilseed market this week was the renewable fuel consumption target released by the US Environmental Protection Agency (EPA) on Wednesday. EPA has set a target of 19.28 billion gallons of renewable fuel consumption in 2017, up from 18.11 billion gallons this year, with 15 billion gallons of traditional biofuels (corn-based ethanol) and 4.28 billion gallons of advanced biofuels (including biofuels based on soybean oil). The news led to a sharp rise in the price of soybean oil, which in turn led to the soybean market. EPA's goal will increase soybean oil consumption, which could tighten China's soybean oil supply. The USDA currently expects end-of-term stocks of U.S. soybean oil to be 1.658 billion pounds in 2016.

The U. S. soybean harvest has been fully completed, while the market supply has improved, the demand for U. S. soybean exports remains strong. According to the weekly export sales report released by the USDA, net soybean sales in the United States in the week ended November 17 were 1898600 tons, 35% higher than last week and 11% higher than the four-week average. So far this year, the total export sales of soybeans has reached 40.3701 million tons, an increase of 26.3 percent over the same period last year.

In China, the futures market for soyabeans and manufactured goods has strengthened again this week because of the weakness of the renminbi, following government measures last week to curb speculation in the futures market. Although the decline in the yuan's exchange rate has slowed this week as the Chinese government has limited the range of exchange rate fluctuations, the yuan is still very weak compared with two weeks ago. As the exchange rate fell, speculators poured into commodity markets to do more.

In South America, Dr. Mike Cordogne, an agricultural expert, reported that 77% of soyabean sowing in Brazil had been completed as of Friday, compared with 70% in the same period last year, with a five-year average progress of 76%. On the whole, the current situation of soybean crops in Brazil has been above average. The weather in central and north-eastern Brazil is still conducive to crop sowing and initial growth. At the same time, despite low international soybean prices and high production costs over the past few months, the strengthening of the Brazilian real and limited opportunities to lock in profits, Brazilian farmers have been slow to sell beans in 2016. But the situation has changed, and farmers are starting to pre-sell more new beans. According to the Mato Grosso State Institute of Agricultural Economics (Imea), as of early July, farmers had pre-sold only 27 percent of the new beans, and most of the new beans were sold to grain companies in exchange for the necessary means of production. The proportion of pre-sales increased by only 2% between July and August, and then by 8% from October 1 to November 14, with most of the pre-sales concentrated on last Thursday and Friday, when the Brazilian real depreciated against the dollar. However, despite the recent acceleration in sales, the pace of pre-sale of new beans still lags behind the same period last year. So far, 36 per cent of new beans have been pre-sold, down from 53 per cent in the same period last year.

In Argentina, by the end of last week, soyabean planting had been completed by 24.2%, up 13% from a week ago, compared with 32% in the same period last year, and a five-year average of 33%. The weather forecast shows that there may be drier weather in Argentina. Dry weather in the short term is beneficial, as it will allow farmers to speed up spring sowing, but dry weather can quickly cause problems. Dr Cordogne believes that if the dry weather lasts for another week, it may start to be worrying.