Kovid in China and the war in Ukraine remain the main factors influencing the oil markets

Usually at the end of the season, oilseeds forecasts do not change significantly, but this year Russia's military invasion of Ukraine, followed by a covid outbreak in China, led to significant changes in the June USDA oil balance.

Thus, the forecast of world production of oilseeds in 2021/22 MY increased by 2.17 million tons to 599.04 million tons due to the increase in soybean harvest in Brazil by 1 million tons to 126 million tons and Argentina by 1.4 million tons to 43, 4 million tons

Against the background of lockdown in China and high prices for vegetable oils, demand for them fell sharply, which slowed imports of essential vegetable oils: palm, soybean and rapeseed.

According to USDA estimates, in 2021/22 MY China will reduce imports of vegetable oils to the level of 2017/18 MY, including palm - by 500 thousand tons to 4.5 million tons, soybean - by 350 thousand tons to 600 thousand tons, rapeseed - by 150 thousand to 1.35 million tons, sunflower - 500 thousand to 1 million tons, as the war in Ukraine destroyed logistics and supplies to world markets. As a result, the consumption of vegetable oils in China will decline for the first time since the early 2000s.

The blockade of Ukrainian ports by Russian troops has changed the logistics of shipments and the structure of exports and processing of oilseeds. In early March, sunflower exports from Ukraine rose sharply as most oil extraction plants were shut down to ensure safety. However, even after the resumption of work, some plants were forced to stop due to lack of ways to sell meal.

According to the USDA forecast, the volume of sunflower processing in Ukraine in 2021/22 MY will decrease by 1.5 million tons to 10.5 million tons, and its exports will grow by 650 thousand tons to 1 million tons. In the first half of the season sunflower exports fell by an average of 5 -annual level, but with the beginning of the war intensified, and as of May 1 reached 500 thousand tons. Shipments are now going mainly to EU countries across the western borders.

At the same time, the forecast for meal exports was reduced by only 150 thousand tons to 3.2 million tons, and oil - by 250 thousand tons to 4.1 million tons, which can not be achieved without unlocking ports, only shipment to the EU by car or rail.

Abolishing lockdowns in China will restore demand for vegetable oils. If Ukraine does not resume maritime exports by that time, prices for sunflower oil and meal will start rising again, especially given the decline in sunflower harvest forecasts in 2022/23 MY.