Seasonal decline: why are sunflower oil prices falling?
Зміст
Introduction: the beginning of a price correction
Over the past week, Russian sunflower oil bid prices for August-September delivery have fallen by $5-10/t to $1,130-1,135/t FOB. This was in response to favorable harvest forecasts and the traditional seasonal price decline.
Price situation on the Ukrainian market
Despite the decline in the export direction, domestic prices are maintained at 52,000–60,000 UAH/t (or $1,170–1,200/t) on FCA terms, which is explained by the shortage of raw materials and high demand from processors and exporters.
Weather supports yields
In most regions (except the south and east), August weather is conducive to seed ripening and filling; harvesting is expected to begin somewhat later, in early September. Russia also has favorable climatic conditions, which increases competition in the market and adds pressure on prices.
International alternative: rapeseed and soybean oil
October palm oil futures on Bursa Malaysia rose 4% to 4,560 ringgit/t (~$1,080/t) on rising demand and increased exports by 16.5-21.3%. Meanwhile, soybean oil in Chicago remains under pressure, with December futures trading at $1,174/t, 4.7% below a month ago.
Further market prospects
Rapeseed and sunflower oil supply is expected to increase in the coming month. In the absence of factors that could support prices, the harvest will continue to lower them under the pressure of a surplus of raw materials.
Context: Oil market and competition
Oil prices remain stable at around $66.2/barrel, with a slight drop (–3.5% per month). New sanctions on Russian oil are not expected at the moment. In addition, the influence of Bulgaria with its possible record sunflower harvest weakens the position of Ukrainian oil on the European market.
The relationship between oil and petroleum prices
- Biofuels. Vegetable oils (sunflower, rapeseed, soybean) are used in the production of biodiesel. When the price of oil increases, biodiesel becomes more competitive, the demand for vegetable oils increases, and their prices also rise.
- Energy market. If oil becomes cheaper, biofuel production loses its attractiveness, so the demand for oils decreases, which puts pressure on prices.
- Investor factor. Funds and traders often consider oils as “related assets” to oil, so their dynamics can also coincide.
That is, although sunflower oil is a food product, its pricing is partially tied to the energy market through biofuels and investment trends.
Infographics with current prices for sunflower, palm, soybean oil and crude oil.
Dependence of vegetable oil prices on oil
Investment factor (traders and funds) as a separate block of influence
Traders and funds track oil price movements and react by shifting some of their capital into oil markets. This can either boost growth or accelerate the decline in vegetable oil prices.
Conclusion
The seasonal decline in sunflower oil prices has already begun on the export market, while domestic prices remain high due to shortages and demand. However, favorable weather conditions, competition, increased supply, and stable oil prices create the foundation for further price correction.