Analys
SEB – Jordbruksprodukter, vecka 5 2012
Vinnare sedan föregående vecka har de olika veteterminerna varit med uppgångar på 4 till 5%. Eurex-terminerna på tyska grisar ligger 10% högre den här veckan, men det beror bara på att vi nu tittar på ett längre terminskontrakt än förra veckan. Det är dock en liten prisuppgång på gris i Europa och också en liten i USA.
I fokus för vetemarknaden har oron för ryskt exportstopp varit. Marknaden har också oroat sig för det kalla och torra vädret i Ryssland.
Oron för torkan i Argentina har lagt sig och när nederbörden kommit tillbaka anses majsskörden kunna stabilisera sig på 18 – 22 mt (USDA:s senaste WASDE låg på 23 mt). WASDE släpps nästa vecka.
Vete
Oro över det kalla vädret i Ryssland och Östeuropa samt ett eventuellt införande av ett ryskt exportförbud har fortsatt att driva vete priset uppåt.
Den ryska regeringen diskuterar frågan om att eventuellt införande av skatter / tullar på spannmålsexporten för att bromsa den höga exporttakten.
Jordbruksministeriet i Ryssland övervakar dock kontinuerligt volymen som exporteras, och som fortfarande är stabil, och kommer att basera sitt beslut på den volym som har exporterats per februari månad. I mitten av februari kommer regeringen att kunna estimera volymen för hela månaden och då ta ställning i frågan.
Samtidigt betonar ministeriet att detta inte kan komma som någon överraskning för marknaden och att informationen som har cirkulerat om att skatter / tullar ska införas per april 2012 är ”helt grundlösa”. Som vi har skrivit om tidigare var Putin ute redan i oktober och pratade om att spannmålsexporten för 2011/12 skulle komma att uppgå till 24-25 miljoner ton och därefter skulle eventuella restriktioner införas för att inte ”landet skulle bli utan bröd och för att upprätthålla lager”.
Rosstat’s statistik visar att produktionen av spannmål och baljväxter i Ryssland under 2011 uppgår till 93.9 miljoner ton, inklusive 56,2 miljoner ton vete, 16,9 miljoner korn, 6,7 miljoner ton majs och 14,1 milj i andra sädesslag och baljväxter. Detta är en uppgång med 54 procent sedan 2010 då landet led av svår torka. Veteproduktionen är upp 36% och produktionen av korn har mer än fördubblats. Det är dock bara 3 procent högre än det 5-åriga genomsnittet. Majsproduktionen matchar rekordåret 2008. Den enorma ökningen är nästan helt och hållet avkastningsrelaterad, då odlad areal endast ökade med 1 procent från 2010 till 43,6 miljoner hektar.
Som ett resultat av den stora spannmålsskörden ökade också exporten av spannmål kraftigt under första halvan av året (juli – december 2011) där Ryssland exporterade över 18 miljoner ton spannmål och baljväxter, inklusive 14,8 miljoner ton vete och det var tre av Rysslands södra regioner (Rostov oblast, Krasnodar och Stavropol krays) som stod för 85 procent av och den totala exporten. Den totala exporten för 2011/12 väntas nå 24 miljoner ton. Trots de höga exportsiffrorna under det första halvåret kommer det att bli en betydlig nedgång i exporttakten under den andra halvan av 2011/12 (januari – juni). Dels är exportpotentialen från de tre södra regionerna i stort sett klar och kommer därmed att vara nästan obefintlig de sista månaderna, dels är det problem med logistiken under vinterhalvåret. Den inhemska efterfrågan på spannmål till foderindustrin är också fortsatt stark och lagren av spannmål för export har minskat.
Vädret har också ställt till det i Ukraina då svårt frost i de flesta ukrainska regioner dramatiskt har bromsat takten på landets spannmålsexport.
En temperatur på runt minus 20 grader gör det i stort sett omöjligt att lasta spannmål på järnvägsvagnar inne i landet medan stark vind och snö hindrar lastningen i hamnarna och flera stora fartyg ligger bara och väntar.
Nedan ser vi kursdiagrammet för marskontraktet på Matif, där priset rusat över motståndet på 217, men faktiskt gick ner på onsdagskvällen och stängde under. Det är en negativ signal.
Nedan ser vi novemberkontraktet, som inte bröt ur sin konsolidering i tisdags morse, men som ännu inte nått motståndsnivån på 205 euro.
Matif har gått ännu mer i backwardation och contangot har minskat för Chicagovetet. Det talas om att den europeiske bonden inte säljer något, utan sitter och håller på sin spannmål. Vi tänker, det kan bli trångt i dörren framåt våren, när alla vill sälja samtidigt.
Vi tror att vi såg en ”key reversal day” igår i och med att marskontraktet tvärvände under dagen och stängde på den lägsta nivån. Ett sådant omslag från uppgång till tvär nedgång brukar vara värt att ta fasta på.
Maltkorn
Maltkornet har handlats upp eftersom vetet handlats upp. Det finns inget specifikt att säga om maltkornet.
Potatis
Priset på industripotatis ligger kvar på samma nivå som förra veckan för skörd 2012.
Nedan ser vi terminskurvan framåt i tiden. Årets låga priser väntas alltså inte bestå.
Majs
Väntad skörd i Argentina håller på att stabilisera sig på 18-21 mt, som är lägre än vad USDA förutspådde i januari-WASDE. Nedan ser vi att priset på decemberkontraktet ligger precis under en motståndslinje. Brott upp genom den är ett tecken på styrka och att vi i så fall skulle kunna få se en fortsatt prisuppgång.
Nedan ser vi terminskurvorna för vete (contango) och majs (backwardation).
Vete är 60 punds bushel, men här har jag räknat om priserna så att de båda är uttryckta som majsens 56 punds bushels.
Sojabönor
Sodrugestvo och Grain Ukraine förutspår en rekordskörd av sojabönor i Ukraina under 2012/13. Lönsamheten är 100-150% på grödan. Bara solrosor och majs har högre lönsamhet. Det finns gott om utsäde. Förfruktsfördelarna har ett högt värde för korn och vete. Tekniskt ser finns ingen signal ännu.
Raps
Novemberkontraktet har brutit motståndet, men ännu inte gått över pristoppen i juli. Så länge det inte sker, har vi inte någon stor trendvändning.
Mjölk
Nedan ser vi priset på marskontraktet på flytande mjölk (kontakt avräknat mot USDA:s prisindex). Vi tror fortfarande att priset kan gå ner till 16 och att prisnedgången är ”halvvägs”.
Gris
Priset på lean hogs har brutit uppåt, och befinner sig därmed fortfarande i det breda intervall som priset pendlat inom det senaste året.
Priset i Europa har betett sig på samma sätt. Nedan ser vi det vid var tid kortaste terminskontraktet (närmast spot). Det ser ut som om priset stigit kraftigt, men det beror bara på att det kontrakt som var kortast tidigare förfallit och att det kortaste nu, ligger på en högre nivå pga säsongseffekten.
Valutor
EURSEK – försöker korrigera nedgången. Vi har en neutral rekommendation på både en veckas sikt och tre månaders.
EURUSD – i rekyl fortfarande Rekommendation: Neutral på en veckas sikt. Negativ på tre månader.
USDSEK – söker efter en botten i korrektionen nedåt Vi har en neutral rekommendation på en veckas sikt, men är positive på tre månader.
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Disclaimer
The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”).
Opinions contained in this report represent the bank’s present opinion only and are subject to change without notice. All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of this document is urged to base his or her investment decisions upon such investigations as he or she deems necessary. This document is being provided as information only, and no specific actions are being solicited as a result of it; to the extent permitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this document or its contents.
About SEB
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Analys
A recession is no match for OPEC+

History shows that OPEC cuts work wonderfully. When OPEC acts it changes the market no matter how deep the crisis. Massive 9.7 m b/d in May 2020. Large cuts in Dec 2008. And opposite: No-cuts in 2014 crashed the price. OPEC used to be slow and re-active. Now they are fast and re-active. Latest cut indicates a ”reaction-function” with a floor price of USD 70/b. Price could move lower than that in May, but JMMC meeting on 4 June and full OPEC+ meeting on 5-6 July would then change the course. Fresh cuts now in May will likely drive market into deficit, inventory draws, stronger prices. Sell-offs in May should be a good buying opportunities

Production cuts by OPEC+ do work. They work wonderfully. Deep cuts announced by OPEC in December 2008 made the oil price bottom at USD 33.8/b on Christmas Eve. That is USD 48.3/b adj. for CPI. The oil price then collapsed in 2014 when it became increasingly clear during the autumn that OPEC would NOT defend the oil price with confirmation of no-cuts in December that year. The creation of OPEC+ in the autumn of 2016 then managed to drive the oil price higher despite booming US shale oil production. A massive 9.7 m b/d cut in production in May 2020 onward made the oil price shoot higher after the trough in April 2020.
Historical sequence pattern is first a price-trough, then cuts, then rebound. This history however points to a typical sequence of events. First we have a trough in prices. Then we get cuts by OPEC(+) and then the oil price shoots back up. This probably creates an anticipation by the market of a likewise sequence this time. I.e. that the oil price first is going to head to USD 40/b, then deep cuts by OPEC+ and then the rebound. If we get an ugly recession.
But OPEC+ is faster and much more vigilant today. Historically OPEC met every half year. Assessed the situation and made cuts or no cuts in a very reactive fashion. That always gave the market a long lead-time both in terms of a financial sell-off and a potential physical deterioration before OPEC would react.
But markets are faster today as well with new information spreading to the world almost immediately. Impact of that is both financial and physical. The financial sell-off part is easy to understand. The physical part can be a bit more intricate. Fear itself of a recession can lead to a de-stocking of the oil supply chain where everyone suddenly starts to draw down their local inventories of crude and products with no wish to buy new supplies as demand and prices may be lower down the road. This can then lead to a rapid build-up of crude stocks in the hubs and create a sense of very weak physical demand for oil even if it is still steady.
Deep trough in prices is possible but would not last long. Faster markets and faster OPEC+ action means we could still have a deep trough in prices but they would not last very long. Oil inventories previously had time to build up significantly when OPEC acted slowly. When OPEC then finally made the cuts it would take some time to reverse the inventory build-up. So prices would stay lower for longer. Rapid action by OPEC+ today means that inventories won’t have time to build up to the same degree if everything goes wrong with the economy. Thus leading to much briefer sell-offs and sharper and faster re-bounds.
OPEC+ hasn’t really even started cutting yet. Yes, we have had some cuts announced with 1.5 m b/d reduction starting now in May. But this is only bringing Saudi Arabia’s oil production back to roughly its normal level around 10 m b/d following unusually high production of 11 m b/d in Sep 2022. So OPEC+ has lots of ”dry powder” for further cuts if needed.
OPEC reaction function: ”USD 70/b is the floor”. The most recent announced production cut gave a lot of information. It was announced on 2nd of April and super-fast following the 20th of March when Dated Brent traded to an intraday low of USD 69.27/b.
JMMC on 4 June and OPEC+ meeting on 5-6 July. Will cut if needed. OPEC+ will now spend the month of May to assess the effects of the newest cuts. The Joint Ministerial Monitoring Committee (JMMC) will then meet on 4 June and make a recommendation to the group. If it becomes clear at that time that further cuts are needed then we’ll likely get verbal intervention during June in the run-up to 5-6 July and then fresh cuts if needed.
Oil man Biden wants a price floor of USD 70/b as well. The US wants to rebuild its Strategic Petroleum Reserves (SPR) which now has been drawn down to about 50%. It stated in late 2022 that it wanted to buy if the oil price fell down to USD 67 – 72/b. Reason for this price level is of course that if it falls below that then US shale oil production would/could start to decline with deteriorating energy security for the US. Latest signals from the US administration is that the rebuilding of the SPR could start in Q3-23.
A note on shale oil activity vs. oil price. The US oil rig count has been falling since early December 2022 and has been doing so during a period when the Dated Brent price has been trading around USD 80/b.
IMF estimated social cost-break-even oil price for the different Middle East countries. As long as US shale oil production is not booming there should be lots of support within OPEC+ to cut production in order to maintain the oil price above USD 70/b. Thus the ”OPEC+ reaction-function” of a USD 70/b floor price. But USD 80/b would even satisfy Saudi Arabia.

US implied demand and products delivered is holding up nicely YoY and on par with 2019. So far at least. Seen from an aggregated level.

Total US crude and product stocks including SPR. Ticking lower. Could fall faster from May onward due to fresh cuts by OPEC+ of 1.5 m b/d

An oil price of USD 95/b in 2023 would place cost of oil to the global economy at 3.3% of Global GDP which is equal to the 2000 – 2019 average.

Analys
Mixed signals on demand but world will need more oil from OPEC but the group is cutting

A world where OPEC(+) is in charge is a very different world than we are used to during the ultra-bearish 2015-19 period where US shale AND offshore non-OPEC production both were booming. Brent averaged USD 58/b nominal and USD 70/b in real terms that period. The Brent 5yr contract is trading at USD 66/b nominal or USD 58.6/b in real-terms assuming no market power to OPEC+ in 2028. Could be, but we don’t think so as US Permian shale is projected by major players to peak next 5yrs. When OPEC(+) is in charge the group will cut according to needs. For Saudi that is around USD 85/b but maybe as high as USD 97/b if budget costs rise with inflation

No major revisions to outlook by the IEA last week in its monthly Oil Market Report.
Total demand to rise 2 m b/d, 90% of demand growth from non-OECD and 57% from Jet fuel. Total demand to rise by 2 m b/d YoY to 101.9 m b/d where 90% of the gain is non-OECD. Jet fuel demand to account for 57% of demand growth as global aviation continues to normalize post Covid-19. Demand for 2022 revised down by 0.1 m b/d and as a result so was the 2023 outlook (to 101.9 m b/d). Non-OPEC supply for 2023 was revised up by 0.1 m b/d. Call-on-OPEC 2023 was reduced by 0.2 m b/d as a result to 29.5 m b/d. Call-on-OPEC was 28.8 m b/d in Q4-22. The group produced 28.94 m b/d in Mar (Argus).
World will need more oil from OPEC. Call-on-OPEC to rise 1.6 m b/d from Q4-22 to Q4-23. IEA is forecasting a call-on-OPEC in Q4-23 of 30.4 m b/d. The world will thus need 1.6 m b/d more oil from OPEC YoY in Q4-23 and 0.46 m b/d more than it produced in March. Counter to this though the OPEC group decided to cut production by 1 m b/d from May to the end of the year. So from May onward the group will produce around 28 m b/d while call-on-OPEC will be 29.1 m b/d, 30.3 m b/d and 30.4 m b/d in Q2,3,4-23.
If the IEA is right about demand then the coming OPEC cuts should drive inventories significantly lower and oil prices higher.
But the market doesn’t quite seem to buy into this outlook. If it had then prices would have moved higher. Prices bumped up to USD 87.49/b intraday on 12 April but have since fallen back and Brent is falling back half a percent today to USD 85.9/b.
Market is concerned for declining OECD manufacturing PMI’s. It is of course the darkening clouds on the macro-sky which is making investors concerned about the outlook for oil products demand and thus crude oil demand. Cross-currents in global oil product demand is making the situation difficult to assess. On the one hand there are significant weakening signals in global diesel demand along with falling manufacturing PMIs. The stuff which makes the industrial world go round. Manufacturing, trucking, mining and heavy duty vehicles all need diesel. (Great Blbrg story on diesel here.) Historically recessions implies a cyclical trough in manufacturing activity, softer diesel demand and falling oil prices. So oil investors are naturally cautious about buying into the bull-story based on OPEC cuts alone.
Cross-currents is making demand growth hard to assess. But the circumstances are much more confusing this time around than in normal recession cycles because: 1) Global Jet fuel demand is reviving/recovering post Covid-19 and along with China’s recent reopening. IEA’s assessment is that 57% of global demand growth this year will be from Jet fuel. And 2) Manufacturing PMIs in China and India are rising while OECD PMIs are falling.
These cross-currents in the demand picture is what makes the current oil market so difficult to assess for everyone and why oil prices are not rallying directly to + USD 100/b. Investors are cautious. Though net-long specs have rallied 137 m b to 509 m b since the recent OPEC cuts were announced.
The world will need more oil from OPEC in 2023 but OPEC is cutting. The IEA is projecting that non-OPEC+ supply will grow by 1.9 m b/d YoY and OPEC+ will decline by 0.8 m b/d and in total that global supply will rise 1.2 m b/d in 2023. In comparison global demand will rise by 2.0 m b/d. At the outset this is a very bullish outlook but the global macro-backdrop could of course deteriorate further thus eroding the current projected demand growth of 2 m b/d. But OPEC can cut more if needed since latest cuts have only brought Saudi Arabia’s production down to its normal level.
OPEC has good reasons to cut production if it can. IEA expects global oil demand to rise 2 m b/d YoY in 2023 and that call-on-OPEC will lift 1.6 m b/d from Q4-22 to Q4-23. I.e. the world needs more oil from OPEC in 2023. But OPEC will likely produce closer to 28 m b/d from May to Dec following latest announced production cuts

Market has tightened with stronger backwardation and investors have increased their long positions

Net long specs in Brent + WTI has bounced since OPEC announcement on coming cuts.

Saudi Arabia’s fiscal cost-break-even was USD 85/b in 2021 projected the IMF earlier. Don’t know when it was projected, but looks like it was before 2020 and thus before the strong rise in inflation. If we add 15% US inflation to the 2021 number we get USD 97/b. Inflation should lift budget costs in Saudi Arabia as it is largely a USD based economy. Though Saudi Arabia’s inflation since Q4-19 is reported as 8% to data while Saudi cost-of-living-index is up by 11%. Good reason for Saudi Arabia to cut if it can cut without loosing market share to US shale.

Adjusting for inflation both on a backward and forward basis. The 5yr Brent price is today at USD 66.3/b but if we adjust for US 5yr inflation it is USD 58.6/b in real terms. That is basically equal to the average Brent spot price from 2015-2019 which was very bearish with booming shale and booming offshore non-OPEC. Market is basically currently pricing that Brent oil market in 5yrs time will be just as bearish as the ultra-bearish period from 2015-2019. It won’t take a lot to beat that when it comes to actual delivery in 2028.

Nominal Brent oil prices and 5yr Brent adj. for 5yr forward inflation expectations only

ARA Diesel cracks to Brent were exceptionally low in 2020/21 and exceptionally high in 2022. Now they are normalizing. Large additions to refining capacity through 2023 will increase competition in refining and reduce margins. Cuts by OPEC+ will at the same time make crude oil expensive. But diesel cracks are still significantly higher than normal. So more downside before back to normal is achieved.

Analys
How renewable fuels are accelerating the decarbonisation of transport

On 16 November 2022, UK’s Royal Air Force (RAF) Voyager aircraft, the military variant of the Airbus A330, took to the skies for 90 minutes over Oxfordshire. What looked like a routine test flight in its outward appearance was ultimately deemed ground-breaking. Why? It was a world-first military transporter aircraft flight, and the first of any aircraft type in the UK to be completed using 100% sustainable jet fuel.

What are renewable fuels?
Renewable hydrocarbon biofuels (also called green or drop-in biofuels) are fuels produced from biomass sources through a variety of biological, thermal, and chemical processes. These products are chemically identical to petroleum gasoline, diesel, or jet fuel.
In other words, renewable fuels are sources of energy chemically identical to fossil fuels but produced from domestic, commercial, or agricultural waste (see Figure 1 below).
Figure 1: Converting waste into energy

Why the excitement?
Renewable fuels, like renewable diesel and sustainable jet fuel, can reduce greenhouse gas emissions by around 80-90% compared to fossil fuels. And because they burn much cleaner, engine filters remain cleaner for longer reducing the need for maintenance. Furthermore, given used cooking oil, vegetable oil, processing waste, and animal fat waste are used as inputs, the production of these fuels reduces biowaste, thereby cutting emissions from landfills.
This makes renewable fuels a key component of the circular economy. Humans have largely operated on the linear model historically when it comes to utilising natural resources. The circular model, in contrast, is much less wasteful and seeks to recycle as much as possible (see Figure 2 below).
Figure 2: The Circular Economy

The most exciting thing about renewable fuels is the immediacy with which they can make an impact. The reason why they are referred to as drop-in fuels is that they can replace fossil fuels in internal combustion engines with little or no modification required. So, if supply was abundant enough, forms of transport which cannot be electrified easily like heavy duty trucks, ships, and aeroplanes can be switched across to renewable fuels making a significant improvement to the environmental footprint. According to BP, “A return flight between London and San Francisco has a carbon footprint per economy ticket of nearly 1 tonne of CO2 equivalent. With the aviation industry expected to double to over 8 billion passengers by 2050, it is essential that we act to reduce aviation’s carbon emissions.”
The challenge
Renewable fuels or biofuels are still in their infancy. This means the obvious hurdle to overcome is cost competitiveness with fossil fuels. Cost estimates vary, but figures from the International Air Transport Association (IATA) provide a useful sense for the ballpark. In May 2022, IATA stated that the average worldwide price of jet fuel is about $4.15 per gallon compared to the US average price of a gallon of sustainable aviation fuel, which is about $8.67.
So, roughly double the price of the incumbent polluting technology. This is not a bad starting point at all. Considering how rapidly the cost of energy storage in batteries has fallen in the last decade, renewable fuels could become competitive quite soon if sufficient investment is made and economies of scale are achieved. IATA also predicts that renewable fuels could make up 2% of all aviation fuels by 2025, which could become a tipping point in their competitiveness.
Businesses are acting
Businesses pursuing their own net zero targets have already started exploring renewable fuels to minimise their waste. Darling Ingredients Inc, which produces its trademark Diamond Green Diesel from recycled animal fats, inedible corn oil, and used cooking oil, was chosen by fast food chain Chick-fil-A in March 2022 to turn its used cooking oil into clean transportation fuel.
Similarly, McDonald’s entered into a partnership with Neste Corporation in 2020 to convert its used vegetable oil into renewable diesel and fuel the trucks that make deliveries to its restaurants. According to TortoiseEcofin, both Darling Ingredients and Neste have a net negative carbon footprint given emissions produced by these businesses are lower that the emissions avoided because of their renewable fuels.
A final word
Renewable fuels alone will not tackle climate change. No single solution can. But they can help us make meaningful progress. The Intergovernmental Panel on Climate Change (IPCC) emphasises how crucial it is for the world to halve its greenhouse gas emissions this decade to at least have a chance of limiting global warming to 1.5oC. This means that solutions with an immediate effect have an important role to play. Biofuels can cut emissions from waste in landfills and provide much cleaner alternatives to fossil fuels to help accelerate the world’s decarbonisation efforts. They don’t require different engines to be of use. They just need funding to reach scale.
Mobeen Tahir, Director, Macroeconomic Research & Tactical Solutions, WisdomTree
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