Fats, Oils, and Oilseeds: Rising Volatility, Focus on Weather and Demand Shifts
In July, fats, oils, and oilseeds experienced a volatile rally followed by a pullback, with the market centered on factors like crude oil, weather, and demand evolution. Recurring tensions in the Middle East and extreme heat across major oilseed-producing regions pushed price centers higher. The sector showed a divergence, with stronger overseas expectations but weaker domestic spot markets; oilseed and protein meal performance surpassed that of oils. Turning to August, macro conditions and weather will be the core drivers for the fats, oils, and oilseeds market. On the macro front, ongoing geopolitical friction between the US and Iran, along with persistent risks from Houthi disruptions in the Red Sea, keep the market weighing geopolitical premiums, which influence the valuation of domestic and international oilseeds and meals. The Federal Reserve held interest rates steady at its July meeting, but the market is pricing in a possible rate hike in September; if rate hike expectations intensify, it could cap the upside for commodities. Regarding weather, July saw high temperatures across key production zones for US soybeans, Canadian canola, EU rapeseed, Russian sunflower seeds, and Ukrainian sunflower seeds, with soil moisture levels generally declining. This heat raises the risk of lower oilseed yields, though current crop growth remains at normal or slightly above normal levels. It is crucial to closely monitor August weather in these regions, as the duration of high temperatures and drought will determine the extent of yield forecast downgrades, while also watching for results from August field surveys by institutions. Drought conditions in Southeast Asian palm oil regions are gradually worsening, with expectations of further deterioration in August and September, particularly in Indonesia, which could hinder the recovery of palm oil production in the second quarter of 2027. On the demand side, for oilseeds, focus will be on the pace of Chinese purchases and the implementation of US biofuel policies; for international oils, the key is to monitor pre-Diwali stocking in India, with August considered a pre-purchase window and concentrated buying typically starting in September. Additionally, sustained tracking of Indonesia's biofuel policy implementation and rollout pace is necessary. In the domestic market, protein meal demand will focus on the pressure of slowing feed consumption amid declining livestock inventories; oil demand will center on the intensity of food company stocking ahead of the Mid-Autumn Festival, with the core observation being whether the pace of oil and meal inventory accumulation can slow once demand picks up. In summary, the domestic and international oil and meal markets in August are likely to continue range-bound trading, maintaining a pattern where near-term contracts are pressured by current inventories, while far-term contracts are supported by climate and policy expectations. With a dense calendar of macro, weather, and demand themes, oil and meal volatility is expected to remain high. Closely track changes in core variables: if India initiates concentrated vessel purchases, high temperatures and drought persist in oilseed production areas, and crude oil remains relatively strong, these themes could converge to boost oil and meal prices, with the oil-to-meal ratio having room to rise. Conversely, if August rainfall improves in production areas and expectations for a bumper harvest increase, the pressure of ample supply could weigh on the market, potentially leading to an early pricing of the harvest logic for oils and meals.
Eggs: Spot Prices Dip After Rally, Main Contract Continues Decline
1. This month, egg futures prices continued to rise, then retreated after surpassing early highs in mid-July. At the start of July, the main 2609 contract continued to climb, and after hitting an intraday high above the previous peak on July 13, it began a sustained decline. As of the close on July 31, the main egg 2609 contract had fallen 11.02% month-to-date, settling at 3,949 yuan per 500 kg. Early in the month, spot prices rebounded from a low, and combined with optimistic fundamentals and market sentiment, futures prices continued to rise, exceeding the June peak. With the positive factors already priced in and no new bullish news, futures prices corrected from their highs. Subsequently, a pullback in spot prices further weighed on futures, leading to a continued decline. 2. In July, egg spot prices showed a pattern of rallying then pulling back slightly. As of July 30, the average daily price for brown-shelled eggs in China, as tracked by Zhuochuang, was 4.6 yuan per jin, up 0.58 yuan per jin from the previous month. As spot prices fell to a short-term low, lower prices boosted demand, leading to a rebound at the start of the month. On July 21, spot prices hit a monthly high of 4.78 yuan per jin, up 0.76 yuan per jin from the end of the prior month. However, the nationwide hot weather was unfavorable for storage, and as the spot rally continued, trade stocking became cautious, causing a slight pullback in prices. 3. Zhuochuang's monthly data for July showed that the laying hen inventory was 12.85 billion birds, a 0.16% increase month-on-month and a 5.23% decrease year-on-year. While inventory increased slightly month-on-month, the high temperatures led to a continued decline in laying rates. Zhuochuang sample point data indicates that as of July 31, the bi-weekly egg production rate was 90.43%, down 0.57 percentage points month-on-month. Considering both inventory and laying rates, short-term supply is relatively stable. New additions: In July, the number of replacement pullets, represented by the monthly chick output from sample enterprises, was 44.77 million, down for two consecutive months. In terms of culling, the widespread hot and humid weather led to a noticeable decline in egg production rates among older hens in some areas, increasing farmers' willingness to cull them, resulting in higher culled hen numbers and correspondingly lower prices. In July, Zhuochuang sample points reported culling of 77.20 million birds, an 8% increase from the previous month. If culling continues to increase in the future, it could offset the rise in new open-laying hens from August to September, which resulted from increased pullet placement in April and May. On the demand side, short-term hot weather is suppressing trade stocking willingness. Later, as temperatures drop and demand recovers, entering the peak seasonal demand period, demand will support spot prices. The futures market needs to monitor capital and market sentiment shifts.
Corn: Geopolitics and Weather Impact US Grains; Domestic vs. International Performance Diverges
Overseas: In July, the CBOT grain market saw wheat lead the gains, with corn following wheat's fluctuations, and prices initially rising before falling. Towards the end of the month, anticipated rainfall was expected to ease drought conditions, causing wheat futures to pull back from highs. Corn and soybeans also rallied initially then corrected, with wheat's rally encountering resistance and triggering profit-taking, driven by US Midwest weather, export orders, and the Black Sea situation. Early in the month, high temperatures in the Midwest impacted crop growth, and combined with a large US soybean export sale to China, corn and soybeans moved higher. Mid-month, uncertainty over Black Sea grain shipments boosted wheat, pushing the market higher. In the latter half of the month, the USDA reported a decline in corn condition ratings to 63%, providing a weather-driven boost, but long positions took profits, and the market ended the month lower. Corn saw volatile monthly swings, weakening at the month's end; soybeans followed weather patterns, with Brazilian bumper harvests limiting price gains, leading to a sharp drop at month-end; wheat was supported overall by Black Sea geopolitics, but profit-taking after highs led to a slight decline. Monthly themes were weather as the primary driver, with export data providing intermittent boosts, while the strengthening dollar capped gains for grains. Overall, July saw increased grain volatility and intense long-short battles, with higher price ranges for wheat and corn, resulting in broad-range trading. Domestic: Domestic corn spot prices weakened, while wheat prices were stable to slightly lower. Rumors suggested that wheat market policy support was about to begin, with the grain market awaiting policy direction. The supply-demand balance for corn in July-August was generally loose, with high inventory levels among traders in Northeast and North China. High temperatures increased the risk of grain spoilage, and combined with pressure from capital calls, merchants concentrated on selling. Deep processing plants entered summer maintenance shutdowns, and the feed sector extensively used cheaper wheat as a substitute for corn. Corn prices at northern ports fell to 2,270-2,280 yuan per ton, with producing areas seeing a 20-30 yuan per ton decline for the month, and market sentiment was cautious. Wheat was pressured by the new bumper crop, with flour entering a consumption off-season, leading flour millers to suppress purchase prices. Common wheat purchase prices gradually approached the 1.19 yuan per jin minimum purchase price threshold. The market showed differentiation, with common wheat weakening while high-quality strong gluten wheat was relatively resilient due to tight supply. At the end of July, the rotation and purchase operations by various reserve levels in the wheat market provided a bottom, limiting the potential for a sharp drop. The price spread between wheat and corn continued to narrow, increasing the volume of feed-grade wheat substitution, which dually suppressed the upside for grains. The overall pace of buying and selling was moderate for the month, dominated by purchases based on immediate needs. In summary, July-August corn market factors from substitutes and weather were mixed. El Nino drought conditions provided price support for US grains, but had limited impact domestically, with futures prices exhibiting range-bound trading.
Live Hogs: Spot Prices Fluctuate, Futures Trade in a Range
1. In July, live hog spot prices showed a pattern of initial gains followed by declines. At the end of June and beginning of July, weak willingness among farmers to sell provided short-term support to hog prices, leading to a rebound. As of July 13, the average national hog price tracked by Zhuochuang was 11.18 yuan per kg, up 1.82 yuan per kg from the low at the end of June. Due to ample supply, farmers' willingness to hold onto prices began to waver. Concurrently, nationwide high temperatures meant weak end-user pork demand, and spot prices continued to weaken. As of July 30, the national average hog price was 10.2 yuan per kg, up 0.08 yuan per kg from the previous month but down 0.98 yuan per kg from the monthly high. In the benchmark delivery area of Henan, the price was 10.68 yuan per kg, up 0.55 yuan per kg from the previous month. 2. In July, piglet prices continued to rise. As of July 30, the average piglet price was 269 yuan per head, up 123 yuan per head from the previous month. Driven by the rise in live hog spot prices at the start of July, replenishment willingness increased, lifting piglet prices. According to the growth cycle, piglets currently being replenished correspond to a slaughter cycle during the pre-Spring Festival demand peak season, thus downstream replenishment demand was decent, supporting further price increases. 3. Slaughter weights continued to decline in July. As of July 30, sample points from Zhuochuang indicated an average slaughter weight of 123.92 kg per head, down 0.44 kg per head from the beginning of the month. Under high temperatures, end-user pork consumption was weak, and hog prices continued to weaken. As prices fell, farmers' willingness to hold onto pigs eased, and slaughter weights continued to decline. 4. Farming costs remained relatively stable, while profits fluctuated with spot prices. The end of June saw a hog price rebound, narrowing losses. At the start of July, profits from rearing piglets recovered to the breakeven level. Subsequently, as live hog prices persistently weakened, farming profits followed, and losses widened again. Zhuochuang data for July 30 showed a profit of -235 yuan per head for farrow-to-finish operations, narrowing losses by 11 yuan per head from the previous month but widening by 145 yuan per head from the start of the month. Profit for piglet rearing was -265 yuan per head, widening losses by 122 yuan per head from the previous month. 5. Nationwide high temperatures kept end-user demand weak, with slaughterhouse operating rates remaining low. Zhuochuang data indicates that as of July 30, the sample slaughterhouse operating rate was 33.8%, down 1.23 percentage points from the previous month. Persistent hot weather limited downstream demand, and poor sales results led slaughterhouses to have low purchasing willingness. Technically, hog futures prices hit new lows, returning to a range-bound performance.
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