Analysis-White House weighs inflation vs. farmers in new biofuel mandates

By Jarrett Renshaw and Stephanie Kelly

(Reuters) – The White House is expected to announce in coming weeks the amount of biofuels like corn-based ethanol that U.S. refiners must blend into their fuel this year, a decision that will force it to weigh taming consumer inflation against supporting the nation’s farmers.

How the administration balances the competing priorities could play a role in November’s midterm elections, as high consumer prices pose a political threat to President Joe Biden’s Democratic party and Farm Belt voters remain a crucial constituency.

The White House National Economic Council, led by Brian Deese, is pouring over numbers to gauge whether lowering blending mandates for ethanol and renewable diesel will help blunt rising food and fuel prices, according to two sources familiar with the process.

Cutting mandates for ethanol and advanced biofuels like biodiesel could theoretically cut food costs by reducing demand for corn, soy and other staple crops that have become more scarce since Russia’s invasion of Ukraine. Trimming the mandates could also potentially take pressure off pump prices by reducing blending compliance costs for some oil refiners.

But doing so would anger farmers and the biofuels industry that insist the annual blending mandates are critical to supporting their livelihoods.

White House officials are meeting with lobbying groups representing oil and consumer goods giants, including the Food Manufacturing Coalition, American Bakers Association, American Petroleum Institute and Renewable Fuels Association, as they weigh the possible changes.

“I have never in the history of the program seen such a confluence of issues potentially impacting the outcome. If there was a perfect storm, this is it,” said Michael McAdams, president of the Advanced Biofuels Association.

The Environmental Protection Agency sent its proposal on biofuel volume mandates for the years 2020 through 2022 to the White House for final review in late April. The proposal would retroactively lower the mandate for 2020 and 2021 but to boost it back up again for 2022, three sources told Reuters. The EPA declined to comment.

ETHANOL AND HIGH GAS PRICES

The U.S. Renewable Fuel Standard, enacted in 2005, requires refiners to blend biofuels like ethanol into the fuel pool or buy credits from refiners who do. The program has been an economic boon for states like Iowa and Nebraska, but smaller refiners who have not invested in blending facilities say the cost of buying credits threatens their plants.

U.S. credits tied to ethanol are trading at over $1.60 each, the highest since August, while biomass-based credits are over $1.80 each, near the highest since June. The ethanol credits, which traded as low as 8 cents apiece in early 2020, have remained at historically higher levels since last year.

Economists say some portion of the cost of the credits is passed on to consumers, resulting in higher pump prices. Some refiners and their union backers are encouraging the White House to lower the ethanol mandate below 15 billion gallons in 2022 to drive the credit costs down.

Without the cost of compliance credits, however, adding ethanol to the nation’s fuel pool can actually reduce pump prices, by expanding the overall volume of available fuel using a substance cheaper than straight gasoline.

The White House earlier this year tapped into that dynamic by announcing it was lifting a ban on summer sales of higher ethanol blends of gasoline, called E15.

FOOD VS FUEL

Corn-based ethanol accounts for the overwhelming majority of blending under the RFS. In 2022, the EPA proposal would require refiners to blend 15 billion gallons of ethanol and 5.77 billion gallons of advanced biofuels.

In recent years, while ethanol demand has remained stagnant, demand for advanced biofuels like renewable diesel and sustainable aviation fuel has surged as states like California and Oregon adopt their own renewable fuel mandates. That has swollen demand for oilseeds like soybeans and canola that serve as biofuel feedstocks and compete with other food crops for finite planting area.

The edible oils are used in everything from cakes, chocolate and frying fats to cosmetics, soap and cleaning products.

Robb MacKie, president of the American Bakers Association, which includes companies like Kroger Co and Tasty Baking Company, first raised concerns about supply and prices for these products with the EPA last year, asking that blending levels be rolled back to 2020 levels.

Then Russia’s invasion of Ukraine in February made the problem worse.

Russia and Ukraine account for nearly a third of global wheat and barley production, and two-thirds of the world’s exports of sunflower oil used for cooking. Also, Indonesia recently banned exports of palm oil, cutting off more than half of the global supply.

Soybean futures have risen over 20% so far this year to more than $16 per bushel, while corn futures have gained about 30% to over $7.90 a bushel.

“In light of what we are experiencing, the alarm bells are ringing,” MacKie said.

(Reporting By Jarrett Renshaw and Stephanie Kelly; Editing by Heather Timmons, Richard Valdmanis and Marguerita Choy)

Russian wheat prices up, export pace slows

(Reuters) – Russian wheat export prices rose last week with higher wheat prices in Chicago, analysts said on Monday, adding that the country’s exports were slowing down due to seasonal factors.

Prices for wheat with 12.5% protein content for supply in May from Black Sea ports were at $390 free on board (FOB) at the end of last week, up $5 from a week earlier, the IKAR agriculture consultancy said.

Sovecon, another consultancy, said, citing data from ports, that Russia exported 330,000 tonnes of grains last week compared with 440,000 tonnes a week earlier.

The consultancy expects the pace of wheat exports from Russia to slow to 1 million tonnes in May from 2.2 million tonnes in April as the state export quota is being depleted.

In the domestic market, prices fell due to strong rouble currency and higher supply from farmers who need to clean up their storage before the new crop arrives in summer.

Russia’s 2022 wheat crop is expected to reach a record-high of 87 million tonnes, President Vladimir Putin said last week.

Spring grains were planted on 12.6 million hectares as of May 12 vs 11.5 million hectares a year ago as the sowing accelerated in Russia’s Volga region, Sovecon said.

The weather remains very good for the upcoming crop, Sovecon said, adding that farmers across almost all key regions report good conditions for winter wheat.

Other Russian data provided by Sovecon and IKAR:

Product: Price at the end Change from week

of last week: earlier

– Domestic 3rd class 15,875 rbls/t -175 rbls

wheat, European part ($248.91)

of Russia, excludes

delivery (Sovecon)

– Sunflower seeds 40,650 rbls/t -250 rbls

(Sovecon)

– Domestic sunflower 111,700 rbls/t -2,650 rbls

oil (Sovecon)

– Domestic soybeans 50,500 rbls/t -450 rbls

(Sovecon)

– Export sunflower $1,900-2,000/t unchanged

oil (Sovecon)

– Export sunflower $1,940/t unchanged

oil (IKAR)

– White sugar, $960.6/t -$2.5

Russia’s south

(IKAR)

($1 = 63.7780 roubles)

(Reporting by Reuters; Editing by David Evans)

Dust storm, hurricane-force winds tear destructive path across U.S. upper Midwest

By Christopher Walljasper and P.J. Huffstutter

CHICAGO (Reuters) – Hurricane-force winds tore across the U.S. upper Midwest Thursday evening, sending walls of dust across cities and rural towns, causing widespread property damage and killing at least two people.

Straight-line winds up to 105 miles per hour (169 kph) reached from Kansas to Wisconsin, pushing waves of farmland topsoil across the horizon and plunging communities into darkness, according to meteorologists and soil experts.

The wall of dust evoked images of the Dust Bowl of the 1930s, said farmers, with winds dropping storage buildings onto tractors and flipping cars on highways.

One person was killed by a fallen tree in Sioux Falls, South Dakota, according to the National Weather Service. A second person was reportedly killed in Minnesota, when a grain bin fell onto a car, according to the Minneapolis Star Tribune.

“The damage is extensive, but it could have been a lot worse,” said Todd Heitkamp, meteorologist-in-charge at the National Weather Service in Sioux Falls, South Dakota. The most severe damage hit parts of Nebraska, South Dakota, Iowa and Minnesota, he said.

As winds subsided, a gritty layer of black dirt covered wind turbine blades and filled drainage ditches, farmers said, as rich top soil, crucial for growing crops, blew off some fields.

Dry conditions across the Great Plains and Midwest, combined with traditional farm practices like soil tillage, set the stage for the massive dust storm, according to Joanna Pope, Nebraska state public affairs officer for the U.S. Department of Agriculture’s Natural Resources Conservation Service.

“The best defense to this type of stuff is installing cover crops and soil-saving practices like no-till,” she said.

“Soil that’s exposed gets dried out really fast, and the high winds just make it blow away. That’s people’s livelihoods, blowing way. It’s terrible.”

The storm could compound struggles as farmers face delayed planting, soaring input costs and pressure to increase production amid record-high food prices and fears of shortages.

In central Nebraska, high winds mangled irrigation systems used to offset dry conditions for recently planted crops. Farmer Kevin Fulton said it could be weeks before the costly systems are repaired.

Farmer Randy Loomis was planting corn near Ayrshire, Iowa, when the storm rolled through, tossing a neighbor’s grain bin across his yard.

His wife and daughter, after dropping off his supper, abandoned their car to huddle against the wind in a nearby ditch, he said.

“That big dust cloud was three football fields wide,” said Loomis, 62. “It was just black. … it had sucked up all that black dirt.”

(Reporting by P.J. Huffstutter and Christopher Walljasper in Chicago; Editing by Richard Chang)

Indonesia’s flip-flops give Malaysia edge in top palm oil market India

By Rajendra Jadhav and Mei Mei Chu

MUMBAI/KUALA LUMPUR (Reuters) – Indonesia’s “unpredictable” palm oil export policies may help Malaysia emerge as the dominant supplier to India, the world’s top buyer of the edible oil, industry sources said.

Indonesia is the world’s biggest palm oil producer but its erratic export policies, including the most recent ban announced on April 22, have pushed Indian consumers to increase their dependence on Malaysia, the world’s second-largest producer whose output is less than half of its rival.

Malaysia is positioning itself to take advantage of Indonesia’s ban by cutting palm oil export taxes by as much as half, Malaysia’s Commodities Minister Zuraida Kamaruddin said on Tuesday.

The combination of lower export taxes and the Indonesian ban may mean Indonesia’s share of palm oil exports to India will fall to 35% in the current marketing year ending on Oct. 31, from more than 75% a decade ago, according to an estimate from the Solvent Extractors’ Association of India (SEA), a vegetable oil trade body.

“Malaysia is the biggest beneficiary from Indonesia’s unpredictable policies,” said B.V. Mehta, executive director of Mumbai-based Solvent Extractors’ Association of India (SEA), a vegetable oil trade body.

“As Indonesia is not in the market, Malaysia is selling more, and at near record high prices.”

India’s palm oil imports from top suppliers https://fingfx.thomsonreuters.com/gfx/ce/zdpxogzqrvx/IndiaPalmImportsfromTopSuppliersMay2022.png

In the first five months of the 2021/22 marketing year, India has bought 1.47 million tonnes of Malaysian palm oil compared to 982,123 from Indonesia, data compiled by SEA showed.

Trader estimates for May show India imported around 570,000 tonnes of palm oil, with 290,000 from Malaysia and 240,000 from Indonesia.

If Indonesia’s export ban stays in place for two more weeks, then India’s June palm oil imports could fall to 350,000 tonnes, mostly from Malaysia.

NEW NORMAL?

The flip in Indian palm oil imports would upend an established pattern of Indonesian dominance across South Asia.

However, Indian oil refiners feel they have to protect their supply chains against policy shake-ups after Indonesia’s interventions in the palm oil market since 2021.

“You can’t just rely on Indonesia and run a business. Even if Indonesia offers you a discount over Malaysia, one has to secure supplies from Malaysia to hedge against Indonesia’s unpredictable polices,” a Mumbai-based refiner said.

“Refiners commit sales of finished goods in advance and we cannot back out just because raw material is not available,” he said.

But, Malaysia’s relatively tight palm oil inventories are a lingering concern following an enduring labour shortage that has slashed plantation yields.

“Malaysia has limited stocks. Many producers in Malaysia are well-sold nearby,” said an official with a Malaysian planter with operations across Indonesia and Malaysia.

Malaysia produces roughly 40% of Indonesia’s output so it cannot completely replace Indonesian supplies.

Even so, Indian oil consumers are keen to increase Malaysian deals and reduce their reliance on Indonesia.

“Indonesia may lift the ban on exports sometime this month, but there is no guarantee it will not restrict exports again. Malaysia’s export policy is far more stable and that’s what we want,” said an Indian buyer, who declined to be named.

(Reporting by Rajendra Jadhav and Mei Mei Chu; editing by Gavin Maguire and Christian Schmollinger)

Why are food prices going up? Key questions answered

CHICAGO (Reuters) – Why are food prices rising?

Global food prices started to rise in mid-2020 when businesses shut down due to the COVID-19 pandemic, straining supply chains. Farmers dumped out milk and let fruits and vegetables rot due to a lack of available truckers to transport goods to supermarkets, where prices spiked as consumers stockpiled food. A shortage of migrant labor as lockdowns restricted movement impacted crops worldwide.

Since then, there have been problems with key crops in many parts of the world. Brazil, the world’s top soybean exporter, suffered from severe drought in 2021. China’s wheat crop has been among the worst ever this year. Concerns about food security, heightened during the pandemic, have led some countries to hoard staples to ward off future shortages, limiting supplies on the global market.

Russia’s invasion of Ukraine in late February dramatically worsened the outlook for food prices. The U.N. food agency said prices hit an all-time record in February and again in March. Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world’s export of sunflower oil used for cooking. Ukraine is the world’s No. 4 corn exporter. The conflict has damaged Ukraine’s ports and agricultural infrastructure and that is likely to limit the country’s agricultural production for years.

Some buyers are avoiding buying grains from Russia due to Western sanctions.

Indonesia banned most exports of palm oil in late April to ensure domestic supplies of cooking oil, cutting off supplies from the world’s largest producer of the edible oil used in everything from cakes to margarine.

What food prices are rising the most? 

Throughout the pandemic, high vegetable oil prices have helped drive up broader food costs. Cereal prices also hit a record in March, a result of limited shipments of corn and wheat during the Ukraine war.

Dairy and meat prices reached a record in April, according to the U.N. food agency, reflecting continually increasing global demand for protein and high prices for animal feed – mainly corn and soybeans. In addition, bird flu in Europe and North America impacted egg and poultry prices.

In U.S. inflation data for March, the index for meats, poultry, fish and eggs increased 14% from a year ago while beef rose 16%.

When will food prices come down?

It is hard to say, given that agricultural production depends on hard-to-predict factors like weather. U.N. Secretary-General Antonio Guterres said in early May the problem of global food security could not be solved without restoring Ukrainian agricultural production and Russian food and fertilizer output to the world market.

The World Bank forecasts wheat prices could rise more than 40% in 2022. The Bank expects agricultural prices to fall in 2023 versus 2022. But that depends on increased crop supplies from Argentina, Brazil and the United States – by no means guaranteed.

The sharp rise in fertilizer prices, as countries avoid buying from major producers Russia and its ally Belarus, could discourage farmers from applying adequate crop nutrients to their fields. That could bring down yields and result in lower production, prolonging the crisis. As the climate warms, extreme weather is becoming more common – posing another risk to crop production.

Who is most affected?

Food prices in March accounted for the greatest share of U.S. inflation since 1981, according to Fitch Ratings, while shop prices in Britain surged in April at the fastest rate in more than a decade. But the people most impacted by higher food prices live in the developing world, where a larger percentage of incomes is spent on food.

The Global Network Against Food Crises, set up by the United Nations and the European Union, said in an annual report that Russia’s invasion of Ukraine poses serious risks to global food security, especially in countries facing a food crisis including Afghanistan, Ethiopia, Haiti, Somalia, South Sudan, Syria and Yemen.

(Reporting by Caroline Stauffer in Chicago; Editing by Matthew Lewis)

Exclusive-South Korea’s CJ CheilJedang puts Brazil soy crusher CJ Selecta up for sale, sources say

By Ana Mano

SAO PAULO (Reuters) – The South Korean owner of Brazilian soy processor CJ Selecta has put the company up for sale, drawing interest from large international grain traders, according to three sources with knowledge of the matter.

U.S. companies Cargill Inc and Archer-Daniels-Midland Co are among two dozen firms that have sought information about CJ Selecta from its advisors, the sources said on condition of anonymity because they are not authorized to discuss the process.

Buying CJ Selecta, the world’s largest producer of soy protein concentrate used as animal feed, would help grain merchants doing business in Brazil add higher margin processed products to their portfolio. The company also makes soyoil, organic fertilizer and ethanol in Minas Gerais state.

Brazil is the world’s largest exporter of soybeans.

The seller is South Korea’s conglomerate CJ CheilJedang, which declined to comment.

In a regulatory filing on April 26, CJ CheilJedang said it was reviewing various strategic options for CJ Selecta, without elaborating. It said it would issue another statement whenever a decision was made, “or within the next three months.”

Cargill declined to comment. ADM did not reply to emails seeking comment.

One of the sources said Morgan Stanley and PWC are advising CJ CheilJedang, adding that talks are being held in New York and have lasted several months.

Some 24 companies showed an interest in CJ Selecta, which has projected annual sales of between $700 million and $800 million, according to one source.

There were a least four non-binding bids as the process advanced, said one source. Another said there is no confirmation about any deal being signed.

Morgan Stanley did not reply to a comment request.

PWC declined to comment.

CJ Selecta belongs to a CJ CheilJedang unit called CJ Bio Division, which is keen on investing in the production of protein for human consumption over the next 20 years, one source said.

Because CJ Selecta mainly focuses on protein used as animal feed, the Koreans are considering the sale, one person said.

In 2017, CJ CheilJedang acquired a 90% stake in the Brazilian soy crusher, paying 360 billion won ($282.50 million).

Two years later it bought the remainder 10% stake.

($1 = 1,274.3200 won)

(Reporting by Ana Mano in São Paulo; Additional reporting by Karl Plume in Chicago and Heekyong Yang in Seoul; Editing by Caroline Stauffer, Alexandra Hudson)

COT: China Growth Fears and Strong Dollar Drive Exodus From Metals

A week that saw a continued deterioration in the global growth outlook driven by extended China lockdowns, a stronger dollar and increasingly aggressive rate hike signals from members of the US Federal Reserve. The week highlighted how traders positioned themselves ahead of last Wednesday’s FOMC meeting. During the week US ten-year bond yields jumped 25 basis points while the dollar reached fresh cycle highs against most currencies. Commodities were mixed with gains in energy and softs being offset by losses across grains, livestock and metals.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodities

The Bloomberg Commodity Spot index traded close to unchanged in the week to May 3 with a six percent gain in energy led by natural gas and diesel as well higher prices for cocoa and cotton in the softs sector, offsetting weakness in precious (-2.3%) and industrial metals (-5.2%), as well as grains (-2.8%).

Speculators and money managers responding to these price changes and the continued loss of momentum by cutting bullish bets across 24 major commodity futures by 7% to 1.85 million lots, a four month low.

Despite racing to a record high in recent weeks, the sector has increasingly become nervours about the global growth and demand look. In the short term due to Chinese lockdowns and longer term due to high inflation and tightening monetary conditions hurting demand. The drop in the total net long to a four months low also driven by elevated volatility forcing leveraged funds, targeting a certain level of volatiltiy to cut their exposure.

From a recent pre-war and pre-China lockdown peak on February 22 at 2.23 million lots, the energy sector exposure has been cut by 23%, metals are down 67% while the agriculture sector is up 2% led by softs.

Energy

Crude oil and refined product futures witnessed a small build in net longs held by funds while a 14% surge in natural gas helped trigger profit taking resulting in a 14% reduction in the net long held in four Henry Hub deliverable futures and swap contracts. Small buying of crude oil did not hide the fact momentum has slowed and traders have become more risk adverse given the number of multiple forces currently impacting the price of oil in both directions.

Latest: Crude oil (OILUKJUL22 & OILUSJUN22) trades steady near a one-month high with the general risk aversity from a stronger dollar, the economic damage from China lockdowns, inflation and monetary tightening being offset by continued supply concerns from Russia and other OPEC+ producers struggling to meet their production targets. G-7 leaders have joined the EU in making a commitment to phase out their dependency on Russian energy, including oil.

While the risk in our opinion remains skewed to the upside, the latest developments are likely to keep crude oil rangebound with focus instead on refined products where multi-year highs are already hurting demand. Monthly oil market reports from EIA Tuesday, followed by OPEC and IEA on Thursday.

Metals

Gold was sold for a third consecutive week with the net-long falling to a three-month low with rising yields and the stronger dollar driving a loss of momentum. The 17% reduction to 82.9k lots was driven by a combination of long liquidation and fresh short selling lifting the gross short to a seven-month high.

Copper has recently suffered from extended China lockdowns hurting the outlook for demand from the worlds top consumer, as well as short selling from macro-based funds using copper as a short play on China. Four weeks of net selling culminated last week with the position flipping to a net short of 8.8k lots for the first time in two years.

Latest: Gold remains at the mercy of a continued rise in US Treasury yields and the stronger dollar with inflation data this week from the U.S. and elsewhere potentially driving additional volatility across market. China and India, two major sources of demand for gold, both seeing their currencies weakening against the dollar, thereby potentially negatively impacting the short-term demand outlook.

Overall, however, compared with stocks and bonds, gold’s relative strength continues. As of last Friday, an investor based in dollars holding gold was +16% ahead relative to the S&P 500 and more than 26% versus TLT:arcx an ETF that tracks the performance of long-dated US government bonds.

In Europe, an investor based in euros has seen an XAUEUR position outperform the pan-European Stoxx50 index by more than 25% and 20% versus an ETF tracking European government bonds. Support at $1850 and $1830.

Agriculture

The grains sector saw selling across all of the six futures contracts led by a 50k lots reduction across the three soybean contracts. The overall 66k reduction was generally driven by a combination of longs being reduced and fresh short positions being added.

Overall the total net long across the sector and the Bloomberg Grains Spot index remains close to a multiyear high, a reflection of current adverse weather uncertainty across the world raising concerns about production levels, together with the risk of the Ukraine war preventing production and exports of key food commodities from wheat to sunflower oil.

Forex

Broad dollar strength and with that broad demand against its major peers accelerated ahead of last week’s FOMC meeting. As the Dollar index climbed to levels last seen in 2003, all of the nine IMM futures tracked in this saw net selling with the aggregate dollar long jumping by $6.3 billion or 41% to $21.8 billion. Selling was most noticeable in EUR were 28.6k lots of selling flipped the net back to a 6.4k lots net short.

This was followed by CAD (-11.9k) and JPY where 5.3k lots of selling took the net short to within 90% of the recent peak at -111.8k lots. Sterling meanwhile was sold for a ninth week, driving an increase in the net short to a 2-1/2-year high -73.8k lots.

What Is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

CF Industries sees $2 billion price tag for U.S. low-carbon ammonia plant

By Tom Polansek

CHICAGO (Reuters) -Fertilizer maker CF Industries Holdings expects a roughly $2 billion price tag for a U.S. plant it plans to build with Mitsui & Co to produce low-carbon ammonia for fuel, Chief Executive Tony Will said on Thursday.

The project, announced this week, aims to meet rising global demand for clean energy.

The companies will share the cost, with CF Industries owning 52% of the intended joint venture and Mitsui owning the rest.

CF Industries has cash on hand thanks to booming prices for fertilizer and on Wednesday reported quarterly record earnings. Sanctions against exporters Russia and Belarus over Moscow’s invasion of Ukraine have tightened global fertilizer supplies and boosted prices.

“Given the fact that we generated $2.8 billion of free cash flow in the last 12 months, it’s imminently affordable and not a crazy amount,” Will told analysts about the plant’s cost.

CF Industries, the world’s largest ammonia producer, and Mitsui said they secured a site on the U.S. Gulf Coast for the “blue ammonia” plant that could begin production in 2027. Ammonia is deemed “blue” when made with fossil fuel and a subsequent carbon capture and storage process.

The plant is expected to produce about 1 million to 1.4 million tonnes a year and will be aimed toward exports, Will said on the call.

“The U.S. does not have a structured regulatory cost of carbon today, but much of the rest of the world does,” he said.

CF Industries plans to oversee plant operations, while Mitsui will handle marketing and distribution into Asia.

The companies are focused on selling the product as marine fuel and will be used to generate electricity with coal in nations like Japan and Korea, Will said. He estimated that global usage of blue ammonia as marine fuel could double because it has “zero carbon emissions.”

The consumption of oil for transportation is one of the top contributors to global greenhouse gas emissions that cause climate change.

(Reporting by Tom Polansek; editing by Diane Craft)

World will face a food crisis, says Brazilian minister

SAO PAULO (Reuters) – Brazil’s Agriculture Minister Marcos Montes said on Wednesday that the world is set to face a food crisis and the country will be increasingly responsible for supplying both domestic and foreign markets with food.

The South American agriculture powerhouse is one of the world’s largest producers and exporters of products such as soybean, corn, sugar, coffee and meat.

“Unfortunately, I have no doubt that we will face a global food crisis. And Brazil will have the responsibility of feeding both its people and the world,” Montes said during an event.

(Reporting by Leticia Fucuchima; Writing by Gabriel Araujo)

Brazil plans ‘fertilizer diplomacy’ trip to N.Africa, Jordan to secure more imports

By Roberto Samora and Ana Mano

SAO PAULO (Reuters) – Brazil’s new agriculture minister Marcos Montes will visit Jordan, Egypt and Morocco in a tour starting this week to discuss increasing fertilizer imports from those countries.

“It’s a pilgrimage that we are calling fertilizer diplomacy,” Montes said in an interview with Reuters late on Monday, adding he would be joined by private sector representatives. “We are going to open doors.”

Brazil relies on imports for about 85% of its fertilizer needs and is concerned about a potential global shortage of the products after Western nations imposed sanctions on key producers Belarus and Russia, while China restricted exports.

Montes’ tour will start on Thursday and last 8-10 days. Brazil also aims to encourage foreign investors to produce fertilizers in Brazil, he said.

Brazil’s fertilizer imports picked up in the first quarter and in April, as local companies rushed to secure product.

The country’s fertilizer imports in April probably surpassed the 1.88 million tonnes from April 2021, according to initial trade data, which showed daily fertilizer imports average jumped to 149,000 tonnes through the fourth week of last month, up from an average of 94,000 a day in April 2021.

Montes said he had originally wanted to start the tour last month, during his first days in the job, but delayed plans because of Ramadan.

Montes replaced Tereza Cristina Dias as agriculture minister in late March, and is building on her legacy.

He has engaged in talks with Iran aimed at boosting Brazil’s urea import quota from the current one million tonnes to three million tonnes.

Dias traveled to Iran in February and was accompanied by Brazilian farmers who are keen on swapping fertilizers for corn.

Montes said negotiations with Iran are ongoing, cited payment difficulties related to sanctions against the country and declined to give a timeline for any announcement.

($1 = 5.0834 reais)

(Reporting by Roberto Samora and Ana Mano; Writing by Gabriel Araujo; Editing by Chizu Nomiyama and Susan Fenton)

Commodity Markets Analysis – Can The Fed Fight Inflation Without Causing A Recession?

Commodity Markets Fundamental Analysis

It is becoming more evident, day by day, that Central banks across the world are fighting a losing battle against rapidly surging inflation and no matter what actions they take now, it will be nowhere enough to tame ever-rising inflationary pressures.

Looking back throughout the whole of 2021, Fed Chair Jerome Powell played down the biggest year-on-year rise in inflation seen in more than four decades – characterizing the record spike as “transitory”, which inevitability will always be remembered as the worst inflation call in the history of the Federal Reserve.

Fast forward to today – inflation is running at a 41-year high and still rapidly accelerating.

To regain its credibility, the Fed must now be seen to move more aggressively on rate hikes, which ultimately means, Stagflation is now a major risk to the economy in the second half of the year, or worst still a recession.

As traders very well know – Monetary policy is a blunt instrument, not capable of surgical precision.

There is generally a very narrow path in successfully engineering a slowdown without causing unintended economic damage. Right now, that path looks extraordinarily narrow given just how far the current rate of inflation is away from the Fed’s preferred inflation target of 2%.

Historically, 11 of the last 14 Fed tightening cycles since World War II have been followed by a recession within the next 12 months.

Will the Fed get it right this time?

Only time will tell, however one thing we do know for certain is that Equity markets tends to lose altitude once the Fed begins its tightening cycle. This inversely presents huge bullish tailwinds for the entire commodities sector ranging from the metals, energies to soft commodities – as they are viewed as one of the most reliable hedges against economic risk, inflation and recession.

So far this year, 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains already – And this is just the beginning!

To quote Goldman Sachs, “they have never seen the Commodities markets this bullish before”.

Commodity Price Forecast Video for the Week 2 – 6 May 2022

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

COT: Metals Led Exodus of Spec Longs on FOMC and Growth Fears

A week that saw a continued deterioration in the global growth outlook driven by extended China lockdowns and increasingly aggressive rate hike signals from members of the US FOMC. The S&P 500 lost 6.4% while VIX jumped 12% to 33.5%. The broad Bloomberg dollar index rose 1.3% while ten-year bond yields slumped by 22 basis points to 2.72%.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodities

The Bloomberg Commodity Spot index dropped 2.3% after hitting a post-Easter record high with all sectors registering losses led by industrial metals (-5.2%) and precious metals (-4%). In response to these developments, hedge funds cut bets on rising commodity prices by the most since last November. Seventeen out of 24 contracts saw net selling with overall net long being reduced by 8% to 2 million lots, representing a $14.3 billion drop in the nominal value to $149.3 billion.

Biggest reductions hitting the metal sector led by gold and copper, followed by the softs sector. The energy sector saw no appetite for adding exposure, despite strong gains among the fuel contracts.

Latest updates on crude oil, gold and copper can be found in our daily Market Quick Take here

Energy

Crude oil was mixed with surging fuel prices supporting a relative outperformance of the WTI contract, but overall a 12k lots increase in WTI was more than offset by a 14k lots reduction in Brent, on global demand concerns, thereby leaving the net down by 2k to 411k lots, and near a 17-month low.

Fuel products surged higher amid tightness caused by Russian sanctions with gasoil in Europe and diesel in New York (ULSD) both surging higher by 30% and 27% respectively. These changes, however, did not attract any appetite for adding risk with both contracts seeing only small changes.

Metals

The combination of growth concerns, especially in China, and very aggressive rate hike statements from US FOMC members, combined with a stronger dollar, helped drive a dismal week for both industrial and precious metals.

Speculators responded to the 2.8% drop in gold by cutting bullish bets by 20% to 99.4k lots with the bulk of the change being driven by long liquidation, not fresh short selling. A similar picture in silver which in response to a 7.4% loss saw its net long being cut by 36% to 26.5k lots.

Platinum saw 13.3k lots of selling flip the net positions back to a net short for the first time since September. HG Copper fared even worse with speculators wiping the slate clean with the net returning close to neutral for the first time since May 2020 when the price was trading close to half the current level.

Agriculture

The grains sector saw the net long being reduced from a ten-year high by 36k lots to 783k lots. Selling was led by corn and soybeans while wheat only witnessed a small reduction in an already relative small bullish bet. The exception was soybean oil which jumped 5.4% in response to a growing global supply crisis impacting edible oils such as sunflower and palm oil.

The softs sector saw the biggest week of net selling since November with the stronger dollar and a general deterioration in risk appetite triggering reductions across all four commodities led by sugar and cocoa.

Forex

Another week of broad dollar strength with the Dollar Index rising 1.3% saw speculators turn net buyers of dollars for the first time in four weeks. The net long versus ten IMM currency futures and the Dollar Index rose 8% to $15.7 billion.

Currencies seeing the biggest amount of net selling was led by the euro (-9.1k lots) and sterling (-10.7k lots) with the latter seeing the net short reach a 2-1/2-year high at 69.6k lots. Yen short covering after hitting a 20-year low supported a temporary bounce, and with that a 11.7k lots reduction in the net short to 95.5k lots, still by far the most shorted currency against the dollar.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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WCU: Fuel Price Surge Lifts Inflation and Risks Killing Demand

Commodity Markets Monthly Fundamental Analysis

The commodity sector raked in another monthly gain in April with the Bloomberg Spot Index tracking 23 major commodity futures, rising for a fifth consecutive month, and in the process hitting a fresh record high. However, the gains were concentrated in the agriculture and energy sectors with precious and industrial metals suffering setbacks in response to extended Covid-19 lockdowns in China hurting growth and demand, and worries that a rapid succession of US rate hikes will hurt an already weakening economic outlook.

In addition to this, the dollar reached multi-year highs against several currencies, most notably a 20-year high against the Japanese yen and a five-year high against the euro.

China’s current situation has by a major investor in Hong Kong been described as the worst in 30 years with Beijing’s increasingly fraught zero-Covid policies slowing growth while raising discontent among the population. As a result, global supply chains are once again being challenged with congestions at Chinese ports building, while demand for key commodities from crude oil to industrial metals have seen a clear drop.

While being short on details, China’s Politburo responded on Friday to this growing unease by promising to boost economic stimulus to drive growth. Earlier this week, President Xi highlighted infrastructure as a big focus and if implemented it would become a key source of extra demand for industrial metals, hence our view that following the recent weakness a floor is not far away.

In my latest online seminar and, in a podcast on MACROVoices this past week, I highlighted the reasons why we see the commodity rally has further ground to cover, and why they may rise even if demand should slow down due to lower growth.

Crude oil

Crude oil continues to trade rangebound within a narrowing range, in Brent currently between $98 and $110 per barrel. It did, however, not prevent the cost of fuel products from surging higher. Diesel, the workhorse of the global economy, rallied strongly led by tightening supply in the New York area driving prices to historic highs.

The war in Ukraine, and subsequent sanctions against Russia, have upended global supply chains while at the same causing a significant amount of stress in the physical market, especially in Europe where Russia for years has been the most important supplier of fuel products.

To fill the void and to benefit from soaring prices, U.S. Gulf Coast refiners have been sending more cargoes to Europe and Latin America at the expense of the U.S. East Coast where stockpiles consequently have dropped to the lowest since 1996. With New York harbor serving as the delivery point for futures trading in the NY Harbor Ultra-Light Sulphur Diesel contract, the tightness there is having an outsized impact on visible prices.

These developments highlight the importance of focusing on the cost of fuel products, and not crude oil, when trying to determine the price levels where demand starts to be negatively impacted by higher prices. As a result, refineries are currently earning a lot of money with margins hitting record levels both in the U.S. and Europe. The charts below show the crack spreads, or the margin achieved by producing diesel from WTI in the U.S. and Brent in Europe.

With the war ongoing and the risk of additional sanctions or actions by Russia, the downside risk to crude oil remains, in our view, limited. In our recently published Quarterly Outlook, we highlighted the reasons why oil may trade within a $90 to $120 range this quarter and why structural issues, most importantly the continued level of underinvestment, will continue to support prices over the coming years.

With regards to the lack of investment currently creating concerns about future level of supply, we will be keeping a close eye on earnings next week from European oil majors such as Shell, Enel, BP and Equinor. Also, given the mentioned surge in refinery margins, the result from Valero.

Gold

Gold was heading for its first monthly loss in three months with an expected turbocharged tightening pace by the US Federal Reserve as well as the mentioned dollar strength being two major catalysts. Silver led the weakness falling to a 2-½-month low around $23 per ounce due to China-related weakness across the industrial metal sector.

As a result, the XAUXAG ratio broke above resistance at 80 ounces of silver to one ounce of gold. Renewed focus on Chinese stimulus initiatives, as mentioned above, would help create a floor under silver, thereby reducing its recent negative pull on gold.

Recently, I have been asked the question why gold is doing so poorly considering we are seeing inflation at the highest level in decades. To this my answer continues to be that gold is doing very well and in line with what a diversified investor would hope for.

We tend to focus primarily on gold traded in dollars, and XAUUSD as can be seen from the table below has ‘only’ returned around 5.5% so far this year. But if we add the performance of the S&P 500 Index and long maturity US bonds the picture looks a lot better. Gold in dollars has outperformed these two major investments sectors by +15% and +23% so far this year. Turning to gold traded in other currencies, the performance looks a great deal better due to the impact of the strong dollar.

Investors in Europe seeking shelter amid rising inflation and a sharp deterioration in the economic outlook have achieved 24% and +21% better returns in gold compared with the Euro Stoxx 50 benchmark and euro government bonds.

We maintain a positive outlook for gold driven by the need to diversify from volatile stocks and bonds, inflation becoming increasingly imbedded and ongoing geopolitical concerns. Having found support at $1875 this week, a weekly close above $1920 may see renewed upside driven by fresh momentum and technical buying.

Copper

Copper broke the uptrend from the 2020 low resulting in a drop to near a three-month low around $4.40 per pound, before sentiment received a boost from China’s pledge to maintain the 5.5% growth target, a level the Chinese economy is currently operating well below.

While the short-term outlook has worsened and inventories at exchange-monitored warehouses have risen during the past four weeks, the outlook in our opinion remains price supportive. The demand for action to isolate Russia through a reduction in dependency of its oil and gas is likely to accelerate the electrification of the world, something that requires an abundant amount of copper.

In addition, Chile, a supplier of 25% of the world’s copper, has seen production slow in recent months, and with an “anti-mining” sentiment emerging in the newly elected government, the prospect of maintaining or even increasing production seems challenged. In addition, Chile’s 13 years of drought and water shortages are having a major impact on the water-intensive process of producing copper.

Moreover, government legislation has been put forward to prioritize human consumption of water and if voted through it may delay investment decision but also force mining companies to invest in desalination facilities, thereby raising the cost of production further.

Agriculture

Soybean oil futures in Chicago reached a record high as Indonesia’s sweeping ban on palm oil exports and rationing of sunflower oil at supermarkets in Europe further stretches global supplies of edible oils. Export restrictions for palm oil used in everything from cooking to cosmetics and fuel will stay in place until domestic prices ease and given that Indonesia consumes only one-third of its production, we should expect exports to resume once inventories are rebuilt and prices stabilize.

The edible oils sector, which according to the UN’s food index has risen by 56% during the past year, is the hardest hit by weather woes and the war in Ukraine, the world’s biggest exporter of sunflower oil, and it is leading to food protectionism by producers which inadvertently may boost prices further.

Speculators have recently increased their exposure to U.S. crop futures to a record with slow planting progress and deteriorating crop conditions highlighting a challenged and price supportive situation. In their latest weekly update, released on Mondays, the US Department of Agriculture said corn planting had advanced by 3% to being 7% complete, the slowest pace in almost ten years and trailing last year’s pace of 17%.

Winter wheat rated good/excellent dropped 3% to 27% and was near the worst on record. The planting delays and conditions have been caused by the weather being too cold, too wet, or a combination of both. Big grain harvests in North America are needed this year after Russia’s invasion of Ukraine has reduced shipments out of the Black Sea, from where 25% of the global wheat export originates, while raising doubts about this year’s crop production in Ukraine.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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At S.Korea’s fried chicken diners, palm oil squeeze feeds inflation fears

By Cynthia Kim and Jihoon Lee

SEOUL (Reuters) – Mr Lee’s diner, a cheap-and-cheerful fried chicken shop near central Seoul, has held firm against raising prices for a decade and a half.

But now, Mr Lee says, Indonesia’s cooking oil export ban and its costly squeeze on prices have been the last straw: he expects to follow larger chains of South Korea’s ubiquitous “chimaek” fried chicken-and-beer outlets that are raising prices, even if he risks losing customers.

Mr Lee’s dilemma highlights the perilous path ahead for policymakers in Asia’s fourth-largest economy, where worries over cost-push inflation prompted a surprise rate hike this month with both inflation rates and expectations at their highest in a decade.

For a wide array of consumer goods using palm oil – from croissants to cosmetics – Indonesia’s surprise moves over the past week to ban exports have sent shock waves globally, pushing up prices for palm oil from other sources such as Malaysia, and for substitutes like soy oil.

“We are cautiously watching the situation as demand for Malay palm oil could increase and could lead to higher prices,” said a spokesperson at Ottogi, a major South Korean producer of frozen pizza and ramen noodles.

Indonesia, the source of more than half the world’s palm oil supply, widened its export suspension on Wednesday to include crude and refined oil, throwing the market into chaos after the war in Ukraine had already squeezed supplies of sunflower oil.

The benchmark price of palm oil futures traded in Malaysia surged their daily 10% limit after Wednesday’s announcement and are up nearly 50% since the start of the year, while soyoil prices on the Chicago Board of Trade hit a record high.

Even before the ban, a steady climb in global prices had roughly doubled the price of an 18-litre container of edible oil in South Korea from a year earlier.

“Everything’s gone up, this box of oil has doubled, flour coating is up, so is chicken,” said Mr Lee, the chimaek diner owner, who declined to give his full name for fear of attracting attention to price increases at his shop. His shop displays a customer service award from a local government office for his long record of steady prices.

“We haven’t been raising prices, but it’s really hard now and we need to raise prices a bit.”

Genesis BBQ, one of the country’s biggest fried chicken chains, last week said it would raise prices for most items on its menu for the first time in four years by 10%, after similar moves by rivals Kyochon F&B and BHC.

This set the stage for similar hikes at local shops like Mr Lee’s, which charges 8,000 won ($6.40) for a whole chicken. The bigger chains will be charging up to 20,000 won for their chickens.

And the price impact of the palm oil squeeze won’t be limited to chicken.

South Korea imported $2.2 billion worth of animal and vegetable fats and oils in 2021, of which about 30% were palm oil, according to customs agency data. Most of that, or 56%, came from Indonesia, and the rest from Malaysia.

“I heard palm oil gets used in so many cosmetics,” said Joo Hyeon-jung, who was picnicking with friends along Seoul’s Hangang River.

“Cosmetics are like necessities for us women and price increases there will really hit me, because its like a fixed expenditure.”

(Additional reporting by Dae-woung Kim; Editing by Edmund Klamann)

Indonesia export ban traps 290,000 T of palm oil shipments for India -trade

By Rajendra Jadhav

MUMBAI (Reuters) – Indonesia’s wider palm oil export ban has trapped at least 290,000 tonnes of the edible oil meant to be headed to India at ports and oil mills in the world’s top producer, four industry officials told Reuters on Thursday.

The disruption in shipments after Indonesia widened its export ban to include crude and refined palm oil will create a vegetable oil shortage in top importer India, the officials said. Second-biggest exporter Malaysia is already struggling to meet higher demand levels and is asking for near record prices for prompt shipments, they said.

“Our vessel of 16,000 tonnes is stuck at Kumai port in Indonesia,” said Pradeep Chowdhry, managing director of Gemini Edibles & Fats India Pvt Ltd, which buys around 30,000 tonnes of Indonesian palm oil every month.

“We don’t know when Indonesia will lift the ban, and stuck shipments will be delivered.”

India is the world’s biggest importer of palm oil and relies on Indonesia for nearly half of the 700,000 tonnes it takes in every month.

Buyers are now rushing to make purchases from Malaysia, but Kuala Lumpur cannot fill the demand, said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage and consultancy firm.

Malaysian sellers are obliged to meet their old commitments and cannot provide palm oil for prompt shipments, he said.

Palm oil – used in everything from cakes and frying fats to cosmetics and cleaning products – accounts for nearly 60% of global vegetable oil shipments, and top producer Indonesia accounts for around a third of all vegetable oil exports.

DOUBLE WHAMMY

India meets nearly two-third of its vegetable oil demand from imports. New Delhi was banking on palm oil after sunflower oil supplies from top exporter Ukraine were halted because of what Russia calls its “special operation” in the country.

Palm oil was trading at a hefty discount to soyoil and sunflower oil earlier this month, and this prompted Indian buyers to increase palm oil purchases for loading in May, said a Mumbai-based dealer with a global trading firm.

“That quantity is now stuck because of Indonesia’s surprise move,” he said.

Black Sea countries account for 60% of world sunflower oil output and 76% of exports, while Indonesia and Malaysia account for the bulk of global palm oil shipments. Argentina, Brazil and the United States are key soyoil suppliers.

“There would be shortage in the market. There is no way to increase supplies,” said Govindbhai Patel, managing director of trading firm G.G. Patel & Nikhil Research Company.

Limited supplies amid robust demand next month because of weddings and festivals could lift prices in India, Patel said.

(Reporting by Rajendra Jadhav; Editing by Tom Hogue)

Bunge lifts 2022 earnings outlook as Ukraine war crimps crop supplies

By Karl Plume and Ruhi Soni

(Reuters) -Global farm commodities merchant Bunge Ltd on Wednesday reported a higher quarterly adjusted profit and raised its full-year earnings forecast by 21% on robust demand and tighter supplies of essential crops since Russia’s invasion of Ukraine.

The two-month war exacerbated already thin supplies of grain and oilseeds after weather-reduced crops in South America and other key production areas, boosting demand and lifting crop processing margins for Bunge.

The results mirrored strong earnings from rival Archer-Daniels-Midland on Tuesday.

Bunge shares surged 5% to $120.80 on the New York Stock Exchange after reaching a record high last week, and were up almost 30% this year.

Bunge’s results highlighted how global grains merchants have weathered surging crop prices and supply chain disruptions triggered by the Russia-Ukraine war. The two nations supply nearly a third of the world’s wheat exports, a fifth of globally traded corn and around 80% of sunflower oil.

World grain and vegetable oil supplies will not recover from disruptions caused by the war for “a long period of time” so other growers and processors, particularly in South America, will play a greater role in tamping down soaring food inflation, Bunge Chief Executive Greg Heckman said.

“There will be a long tail on this because there is infrastructure that has been damaged. There are seaborne logistics that have to be untangled. There are waters that need to be de-mined,” he said.

Bunge’s Mykolaiv port facility sustained damage in fighting last month, but company executives said on Wednesday that it did not appear to be significant.

A prolonged conflict would be a tailwind for Bunge, which makes money trading and processing crops and shipping products around the world.

Bunge raised full-year adjusted earnings guidance to $11.50 per share, from $9.50 previously, and said the guidance had “upside potential” as tight supplies and strong demand persist.

Adjusted profit, excluding one-off items, rose to $4.26 per share, compared with $3.13 a year earlier, topping the consensus estimate of $2.94, according to Refinitiv IBES.

(Reporting by Ruhi Soni in Bengaluru and Karl Plume in Chicago; Editing by Shailesh Kuber, Chizu Nomiyama, Marguerita Choy and Jonathan Oatis)

How Africa is bearing the brunt of palm oil’s perfect storm

By Ange Aboa and Joe Bavier

ABIDJAN (Reuters) – Djeneba Belem’s fried bean cake stall in Abidjan is a world away from the war raging in Ukraine. But her business is now at the mercy of an unexpected consequence: runaway palm oil prices.

“I didn’t even want to sell anymore because I thought, if the price of oil had gone up that much, what am I going to earn?” she said as she stirred a batch of cakes at her street-side stall in Ivory Coast’s lagoon-side commercial capital.

Neither Russia nor Ukraine produces palm oil, a tropical commodity, but Moscow’s invasion has triggered knock-on effects across today’s intricately interconnected global economy.

The conflict has helped propel prices for palm oil – ubiquitous in African dishes from Nigerian jollof rice to Ivorian sticky alloco plantains – to record highs that experts say will deepen a food-cost crisis and punish the poorest.

The upheaval pushed top palm oil exporter Indonesia to ban some exports in recent days, in a effort to keep a lid on domestic prices. A senior government official said on Tuesday that the ban could be widened.

“We’ve never really tested this kind of situation,” said James Fry, founder of agricultural commodities consultancy LMC International. “It will be the poorest in big countries or countries in Africa who will almost certainly have to bear the brunt.”

Indeed in sub-Saharan Africa, food expenses already account for 40% of households’ consumer spending, the highest proportion of any region in the world, and more than double the 17% spent on food in advanced economies.

And as prices rise rapidly across the board, including fuel, and tens of millions of Africans already pushed into extreme poverty by the pandemic, spiking palm oil prices will help force many to make tough choices.

Lucy Kamanja, a beauty industry consultant in Kenya’s capital Nairobi, said a 90% increase in palm-based cooking oil means she’s had to cut down on fruit and household essentials.

“I’m very worried. I don’t know where we’re heading to, because food has almost doubled in price,” she said. “The common person … I don’t know how we’re going to survive.”

‘GIANT LEAP’ IN FOOD PRICES

Even before the outbreak of fighting in Ukraine, inflation had become a global concern. Food commodity prices climbed over 23% last year, the fastest pace in more than a decade, according the United Nations Food and Agriculture Organization (FAO).

In March the FAO’s global price index for meat, dairy, cereals, sugar and oils hit its highest level since its inception in 1990, after a 12.6% “giant leap” from February.

Cooking oils have been among the products hardest hit.

Drought decimated soy oil exports from Argentina and rapeseed production in Canada. Poor weather in Indonesia and COVID-related immigration restrictions in Malaysia throttled palm oil output and caused labour shortages on plantations.

“The only bright spot, in a way, was sunflower,” said LMC’s Fry.

Then Russia sent its military into Ukraine in February, disrupting shipments from the Black Sea region, which accounts for 60% of sunflower production and over three-quarters of exports, and wiping out a huge share of global supply.

If that wasn’t enough, high crude oil prices – another consequence of the war – have added further pressure to vegetable oil supplies by increasing demand for biofuels.

“You almost couldn’t make it up how bad it’s been,” Fry added. “We have had really almost a perfect storm.”

On March 9, about two weeks after Russia’s invasion, the Malaysian crude palm oil contract that serves as the global benchmark topped out at a record 7,268 ringgit ($1,718) per tonne, nearly double the price a year earlier.

The contract, which jumped more than 9% on Wednesday, has now risen by close to 50% this year.

REAPING THE BENEFIT

Culinary tradition aside, the choice of palm oil has also been an economic one for many poor countries, given it has historically been the cheapest of the major vegetable oils.

Lately, however, World Bank data show it’s been catching up to rivals, particularly soy and sunflower oil.

In March, for the first time, it temporarily became the costliest among the four major edible oils in India, considered a global price bellwether, signalling that the days when Africa’s go-to oil was reliably the cheapest could be over.

While this is straining the nerves and budgets of millions of Africans, like Kamanja in Nairobi and Belem in Abidjan, it is also presenting some opportunities on the continent.

Nearly two dozen African countries grow oil palm on almost 6 million hectares of land, and the sector is a major agricultural sector employer of workers who stand to see their incomes rise.

Sylvain N’Cho runs an oil palm mill an hour east of Abidjan and estimates his revenues are up around 20% over the past year.

“We’re not the only ones reaping the benefit of the increase in palm oil prices. Part of it goes to the farmers,” he said as heavy machines loaded bunches of red palm fruit onto a conveyor belt.

Jerome Kanga, who farms two hectares near the Ivorian town of Adiake, said he was disappointed by the prices he was getting when he started producing three years ago.

“But since December, and especially in February and March, it’s been more interesting. There’s been roughly a 20% increase,” he said.

‘EVERYONE IS COMPLAINING’

Yet the number of people getting ahead is dwarfed by those feeling the squeeze.

Africa consumes significantly more palm oil than it produces in a global market dominated by Southeast Asia. Even in Ivory Coast, one of just a handful of net palm exporters, N’Cho conceded that consumers are in for pain.

“If there is an increase over there, there’s systematically an increase on the local market,” he said.

African nations imported nearly 8 million tonnes of palm oil in 2020, according to the FAO, the latest year for which data is available. Nigeria, the continent’s biggest importer, shipped in over 1.2 million tonnes of palm oil. Kenya brought in nearly $830 million worth.

Ann Obanih, who runs a small food shop in Lagos, Nigeria, said the price of the refined red palm oil she buys to resell has gone up roughly 20% in the past month alone.

“Everyone is complaining, as if we’re the ones adding the money. We’re selling according to how we bought it,” the mother-of-six added. “I don’t even know how to cook without palm oil.”

($1 = 4.2300 ringgit; $1 = 597.7500 CFA francs)

(Reporting by Ange Aboa in Abidjan and Joe Bavier in Johannesburg; Additional reporting by Mei Mei Chu in Kuala Lumpur, Seun Sanni in Lagos and Monicah Mwangi and Duncan Miriri in Nairobi; Editing by Pravin Char)

ADM sees years of tight global crop supplies, strong 2022 profit outlook

By Karl Plume and Ruhi Soni

(Reuters) – Global supplies of key crop staples will remain tight for at least two years after harvest shortfalls in some countries and shipping disruptions triggered by Russia’s invasion of Ukraine, Archer-Daniels-Midland Co said on Tuesday.

Demand will likely outpace supplies until at least 2024, resulting in high crop prices that will draw grain stocks out of storage and encourage South American farmers to plant more, the grains merchant said after posting a better-than-expected quarterly profit.

“We are already tight from a supply-demand perspective and we will get tighter as demand continues to grow,” ADM Chief Executive Juan Luciano said during a conference call with analysts.

“We need two very good seasons of crops in North America and South America to … become more comfortable in those supply-demand imbalances.”

The company on Tuesday said strong crop processing margins and higher demand from importers concerned about surging global food inflation propelled its first-quarter earnings beat, adding that 2022 profit would top its record performance last year.

GRAPHIC: Grains firms see higher demand since the Ukraine crisis https://fingfx.thomsonreuters.com/gfx/buzz/zgvomlnblvd/ADM%20BG%20results.PNG

ADM’s results highlighted how global grains merchants have weathered surging inflation and supply chain disruptions caused by the war. Ukraine and Russia supply nearly a third of world wheat exports, a fifth of globally traded corn and 80% of sunflower oil.

The war exacerbated an already tightly supplied market after drought slashed Canada’s harvest last year and poor weather curbed grain and soy production in South America.

Indonesia banning exports of some palm oil starting April 28 further tightened the global outlook for vegetable oils, as Ukraine is a top exporter of sunflower oil. Luciano said some customers were seeking replacement oils in response to the war and Indonesia’s export curbs.

In a more positive development for global food supplies, Luciano said U.S. fertilizer supplies were sufficient for the 2022 crop, though prices were high. He said some shortages were possible in Brazil for the next planting season.

Grain supply chain middlemen like ADM and rivals Bunge Ltd, Cargill Inc and Louis Dreyfus Co, known as the ABCDs of global grain, tend to thrive when crises such as droughts or war trigger shortages in parts of the world.

Net earnings attributable to ADM jumped 53% to $1.05 billion, or $1.86 per share, in the quarter ended March 31, from a year ago.

Excluding items, the company earned $1.90 per share, beating expectations of $1.41, as per Refinitiv data.

(Reporting by Ruhi Soni in Bengaluru and Karl Plume in Chicago; Editing by Maju Samuel, Bernadette Baum and Bernard Orr)

India’s foreign minister says ready to step up on global issues

NEW DELHI (Reuters) – India is prepared to take a much bigger role in global affairs and would help the world with more supplies of wheat to tame food inflation if WTO rules allow, Foreign Minister Subrahmanyam Jaishankar said on Tuesday.

“India is prepared to step forward in a much more substantive way on the big global issues, including in the multilateral arena,” Jaishankar told a conference as various ministers from Europe and Asia asked him about New Delhi’s stance on the Ukraine war, China’s rise and other issues.

He said India had already raised exports of wheat to make up for supply disruptions from the Black Sea region and could do more if global trade rules allowed.

(Reporting by Krishna N. Das; Editing by Christopher Cushing)

Crude palm oil excluded from Indonesia export ban

By Bernadette Christina

JAKARTA (Reuters) – Indonesia’s agriculture ministry said on Monday that crude palm oil shipments would be excluded from a planned palm oil export ban, according to a copy of an official letter sent to local government leaders.

The letter, which was verified by a ministry official, said the ban would however include refined, bleached and deodorized (RBD) palm olein.

It was still unclear on Monday whether products such as RBD palm oil and palm stearin would be affected.

Indonesian President Joko Widodo announced the ban late on Friday. It will take effect on April 28.

Jokowi, as the president is known, said on Friday that exports of cooking oil and its raw material would be banned but did not mention details.

Traders were caught by surprise by Jokowi’s announcement that Indonesia, the world’s biggest palm oil producer, was halting exports of the edible oil to ensure domestic food product availability.

Though an exemption of crude palm oil from the export curbs will be positive for global markets, the majority of Indonesia’s palm exports are in the form of processed oils that remain affected by the ban.

Global edible oil supplies were already choked by adverse weather and Russia’s invasion of major crop producer Ukraine, and now global consumers have no option but to pay top dollar for supplies at a time when global food inflation has soared to a record high.

Malaysian benchmark crude palm futures fell 2.09% after news that the ban only covered RBD olein, having jumped nearly 7% to their highest in six weeks.

“The massive short covering fizzled out after hearing news that the ban only encompasses olein both bulk and packed from Indonesia,” said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari.

He said there were still concerns that crude palm oil would be added to the list of banned products as it is raw material for RBD palm olein.

According to Refinitiv Eikon, Indonesia exported an average of roughly 620,000 tonnes per month of RBD in 2021, compared to an average of around 100,000 tonnes of crude palm oil. Top destinations included India and Pakistan and Spain.

The government’s move to control stubbornly high cooking oil prices caused a slump in shares of its biggest palm oil companies on Monday, while the rupiah headed currency falls in Asia.

Dollar-denominated bonds issued by Indonesia’s government fell more than 1 cent to their lowest since the spring 2020 COVID market rout.

According to data from Indonesia’s palm oil association (GAPKI), exports of processed CPO in 2021 stood at 25.7 million tonnes, or 75% of total exports of palm products. CPO exports were 2.74 million tonnes in 2021, or 7.98% of the shipments.

In January and February this year, processed CPO exports were 3.38 million tonnes or 79% of exports, while CPO exports were 90,000 tonnes, 2% of the total shipped.

Global prices of crude palm oil, which Indonesia uses for cooking oil, have surged to historic highs this year.

(Reporting by Bernadette Christina Munthe; Additional reporting by Mei Mei Chu in Kuala Lumpur; Writing by Gayatri Suroyo and Martin Petty; Editing by Louise Heavens and John Stonestreet)