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Market Dynamics of Plant Oils

And the market is not that flexible to change that. This is one thing. The other thing, then you have to look at the price quotations, what volumes are behind those price quotations. One plant oil that is independent in the prices is olive oil. You see that here. You see the soybean oil, these are the same data in the slide before, but you see here it goes up to $12,000 per ton. And the other one was up to, it was $2,500 per ton. Not really correlated. Olive oil is, I suppose, 2% of the overall plant reproduction. But there are obviously some consumers who really want that olive oil, especially in the south of Europe. You see here, prices go up because of a lot of bad harvests and bad yields in the previous years. It seems to go down again. Any idea what that is here?

Suddenly olive oil production stopped in 2021 because of pandemic?

Doesn't work, it's just a yearly production. You harvest them once a year. I don't know, but I suppose that this is a mistake in the data.

So whenever you see something like that, just one or two months, it could be that there is a mistake in the data. I do not have any good explanation for that. Whenever you give an explanation, I can give you an argument against that explanation. Why should it be for two months from 3000 to just half of the price? Everybody knows at the end of the year how much they harvest. And you will see a lot of mistakes in the data if you really look at the quality of data. I once had a very close look because we had to do an analysis and we have the German company that collects the data. It was at that time on behalf of the Ministry. There were so many inconsistencies and so many mistakes in the data. that you normally do not realize. What you normally do is copy-paste here. You have that in a database and then, oh, come on, the graph is ready, ready to put them on. Okay, so, but what we can learn, there could be mistakes in the data, the one thing, and the other thing is that olive oil is, the prices of olive oil are more or less independent of the other ones. and that they obviously are not substitutes. At least no perfect substitutes.

When we had the problem with the Ukraine and the supply, you know, perhaps you remember that, at the beginning of the Ukrainian war, then there was nearly no plant oil available in the stores here in Germany. And then people took olive oil. So it was a substitute then. But a lot of people bought rapeseed oil because they supposed that there could be a shortage of plant oil and toilet paper, and they just stored that at home. And there was nearly no plant oil available. And the industry, there was plant oil, of course, because we do the plant oil into our cars. But there was no factory that could fill them in bottles. So there was a shortage at another part of the value chain. But then people took olive oil. And olive oil was what was first available in the stores again. So they are not close substitute, but at least you can, if you want to make your salad, you can do that with olive oil instead of grape seed oil. Another thing that we have to consider if you look at the plant oil and the interdependencies of markets is the energy market. We have the energy market on the one hand with ethanol in the cereal markets. We have them with sugar because you can make ethanol out of sugar.

Interdependencies of Energy and Plant Oil Markets

You have the connection between the energy markets and the sugar market. And we don't talk in detail about the sugar market, but within the sugar market, if sugar prices are very low, there is an additional demand for sugar from the energy sector, because Brazil makes alcohol out of the sugar, and they have their so-called flex cars that you can fill with normal gasoline and with alcohol, and you can change the the share of alcohol or you can run them exclusively. So if the energy prices are high and then it is profitable to use sugar for ethanol and if sugar prices are low, you can use the sugar for making ethanol and substituting the normal gasoline. So we have to take a new line and this is the diesel line. So plant oil, you can make diesel out of that, you have to process it. But the first step that you can do is to look at the diesel and the plant oil and what you see that the prices are also highly correlated. But the question is, is it worth using plant oil as a substitute for diesel? If you see that here, what would you say? The first thing is, if diesel, is it worth or is it not? to use plant oil for producing energy?

I can guess maybe it is their substitute close enough.

Yes, so you can do that. You have, you know, in the kitchen if it burns, wow. But what do you have to consider if you want to make energy out of that?

No shelf life, no. the energy content. So diesel has a higher energy density than plumber. So it's not appropriate to use that dollar per ton, but you have to look at the energy. And that is what you can do if you have, for example, dollar per megajoule. In that period, the energy out of diesel is cheaper than the energy out of palm oil. So this is what you always have to take into account. The substitute, of course you have that, normally you have the prices for the plant oil, you have the same volumes that you use, but if you see here, you have to look at the energy. And we know, for example, that biodiesel has a lower energy content than the diesel, 10% more or less. And you would realize that in the end. If you have the choice between biodiesel and diesel, you would realize that you use more biodiesel per 100 kilometers and that it has to be cheaper in order to make you buy that. So the adequate unit to use as the

Quality and Pricing of Plant Oils

You said that olive oil is independent on the prices of all other plant oils because olive oil produced in European Union or in sunflower and others produced outside of European Union?

By other plants. Or they cannot do that because they have certain products that are based on olive oil. This is why. Otherwise, if they were perfect substitutes, they should have the same price rotations.

So, I don't know if this applies to the other oils, but I know for olive oil, there are different classes. Yes, how does that come into play?

This is... Extra virgin. Extra virgin, that's the 1% free fatty acid, extent the price of it. So, this is... lower prices for let's say second class and I'm not quite sure how whether or not you can extract the rest of the oil out of the leaves based on hexane. You know that you normally have the other oils if you process plant oil. The first thing is that you press it. that you add hexane as a catalyst, catalysator, so it doesn't appear in the end product, but you get a lot of more oil out of the rest of the meal. And this, I'm not sure whether you can do that with olive oil. But still, you know, the prices are incredibly high. It's not, even if there is not extra virgin, It shows that this is so relevant to look at the quality that is behind it. Besides, in the organic sector, it's not allowed to use hexane. What is hexane?

Look it up, look it up for excellent. Is anybody able to explain exactly? So you can Google it. But this is a chemical substance that is used for extracting. I could explain it in German, but it's more difficult in English.

Then we have prices here, a graph that shows you the prices and the interdependency of the prices of the raw product. This is soybean, the soybean meal and the soybean oil. What you see on the first side is that Soybean oil is the most valuable part. Prices are much higher than for the meal. You can see that the more or less the prices for the soybeans and the soybean meal are the same. Nearly no difference. Why? Obviously there is a higher demand for the oil. And obviously, if you look, somehow somebody has to pay the margin. And the margin obviously is sufficient to sell the soybean oil more expensive than the soybeans, and there is where they generate their margin. With rapeseed, it looks different. You see the rapeseed meal, the rapeseed and the rapeseed oil. Any idea why the rapeseed meat is cheaper than the rapeseed?

Less protein. What else? Less demand.

No. But you have a higher share of oil. You have a higher share of the valuable oil. So we have 20% in soybeans. 40% in rapeseed. So, we have two reasons. The first is that rapeseed meal has a lower protein content and therefore, if it had a lower protein content, the value for feeding is lower. This is one thing. And the other thing is that this is then the oil, because the higher share of oil makes the rapeseed more valuable regarding the oil content. If you look here, and you can see that the share of oilseed meal in the revenues of oil and oilseed meals. So the question is how much of the overall revenue that you get from rapeseed and from soybeans is the meal and how much is the oil. And you see here with soybeans you get a lot out of the meal And with rapeseed, you get a lot of the oil. But this means if the oil market collapses, rapeseed is much more affected than soybean milk. And if the protein market collapses somehow, then of course soybeans are much more affected. Because the mills cannot pay so much for the soybeans anymore. Because they have somehow to cover their margin. So again, this is why it is important to know a little bit about the extraction rates.

And at least perhaps you don't have them in their mind. You should have them in your mind with the soybeans and the rapeseed. This is common knowledge.

But do you mean that soybean and rapeseed, one farmer grow them together? No. No? Because the climate zones are different. Climate zones are different.

We start doing that here in Europe. If you look at the production countries, you can see that the soybeans are in the US and in South America, especially Argentina and Brazil. The rapeseed is the European Union, Canada and Australia. So they are really differentiated and this is because of the climate, especially because of the climate. We know now from breeding that obviously and from breeding and climate change, that the area within Europe that is appropriate for growing soybeans increases. So we never, there was no need for growing soybeans in the European Union because we had no tariffs on soybeans. So hey, why? grow them yourself, you could import them from an area that is really competitive. And now we have the problems, the environmental problems, and the European Union wants to close the so-called protein gap. They don't want to import so much protein feed anymore. And then they start finding ways to grow soybeans within the European Union. It started, let's say, 15 years ago. So you had some initiatives.

You had the Danube initiative.

So the Danube area from its climate was appropriate for growing soybeans, but they had no marketing system. Hey, it started from zero. And now they give extra premiums for growing soybean. And it's step by small step by small step by small step. the production within the European Union grows. So they try to promote the breeding to tailor the varieties to the climate in Europe. They did not do that for 50 years. And so maybe that someday the share of soybeans that is growing in the European Union is higher. We have here in our Rhineland area they get some premium for growing soybeans, and they can do that, they can substitute that on the area. But this is not normally true. So the question is then, if you look at the overall problem that we have on the markets with the sustainability, this is not the price, this is not production cost, but more and more it seems that not so much consumers, but retailers and certain parts of the value chain want to consider more the sustainability, not just the price. How to do that? You know, one thing, for example, you all should know fair trade. So the coffee may not be better or worse than the normal coffee, but this is the price.

Sustainability in Production and Supply Chains

We have that in the organic sector. So you may not feel a difference between the products, organic or conventional, but obviously some people want to do that organic and by that are willing to pay their price. The question is then, what can you do in order to promote that sustainable production? And there are different ways To do that, they are called, I will explain them in more detail, Identity Preserved Segregation Mass Balance of Book and Click. If you want to have a, sorry, this is still German, if you want to have more detailed explanations, just look at the website and the link that I just copied in there. But we start with the identity preserved. Identity preserved means that In the whole supply chain, it is ensured that, let's say, sustainable... Let's start differently. The example here is palm oil. And the graphs are for palm oil, but you can transfer them to whatever you want. But, you know, the pictures and the explanation, I find them so good, so that I took them.

Certified palm oil, so from the sustainability point of view, certified, this means certified palm oil here, it ensures that the certified palm oil products are identifiable from a single certified palm oil mill and its supply bases, which are kept separate throughout the supply chain. If you see that, so every mill can just say, where it sources its palm fruits from and there is no mixture in the chain. So let's look at Ferrero for example in Nutella. So they can exactly say our palm oil comes from that mill and from that producer. Whenever the palm oil sector they can it's not my business we have that mill we have that producers and we are not affected they can prove that they can implement some social things schools for their producers so you know ferreiro and ferreiro as a to look at its image. So they can say, yes, we use palm oil for the quality of our products, but we are not guilty of all the bullshit that happens in the world. We pay a good price, we have sustainable production, we build schools in the cities or in the villages that our palm oil producers are in, and so on and so on. So it's good for the image.

And therefore it is necessary really to separate that and to be identifiable, to really look at the traceability. A little bit weaker is the segregated supply model. Hey, come on, yes, do this. Somehow if you step on a certain point of the ground here,

But I did not find out there should be a red dot. But it is not. But this model is similar to that. So we have a separation of the segregated, of the sustainable produced product and non-sustainable, let's say, not certified product. But you cannot identify the producer element. We have that, for example, in the organic chain. We know that it is organic, but as a rule, you cannot trace it back to the producer, and they are not separated. So what happened here, it's cheaper to do that. On the other hand, whenever there's a scandal in the value chain of organic, for example, you cannot say we are not affected. You do not know that. So to be on the safe side, The identical preserve thing is better, but it's more expensive. If you realize how expensive the Ferrero products are, you can say, this does not really count for the overall production cost. So this is worth the money. But in the organic sector, if you want to really do that, it becomes more expensive. And if you really have the organic sector with high volumes, and then you have Demeter or some other groups, then it becomes more expensive.

So it's not that you can trace it back, but the more it is necessary to trace it back, the more expensive it is. And it requires a lot of data and a platform in order to do that. And you cannot separate, you cannot put it all in a big pot or in a big tanker, so this becomes more expensive. And if you look at the quality of products, you cannot separate that according to the quality of products anymore. For example, if you have the meat sector and you want to trace it back to the producer, if you have minced meat, for example, it becomes more expensive. It's so difficult and so expensive to separate the balance sheet. Therefore, so this is the segregated model. Therefore, we have a mass balance model. The mass balance model allows the mix of sustainable and unsustainable products. And so the blending at any stage in the supply chain provided that the overall side quantities are controlled. So you can say either I have 35% of sustainable products in that. This sometimes is necessary because you cannot separate the value chains.

So what I've heard, I do not know if there's a lot of rumors and gossips about the chocolate value chain or the cacao value chains, that the companies that are responsible for trading that domestically within the countries, as in the Ebony Coast in Ghana, that they refuse to separate. So that the mass balance thing is the only thing that you can do. The best thing is not the best thing that you can do. Perhaps separating or identity preserve is a better solution, but you cannot implement that. So this could be, or if segregation is too expensive, then you can do that. So this is again a question of the costs, whether you do the mass balance supply system or if you do that differently. And let's say the cheapest system is the book and claim system. You should know, perhaps you know that you can buy for yourself, for your house, green electricity in Germany. But you should be aware that the electricity that comes out of your socket may be.

Atomic power it makes no sense to separate anything the only thing that you can do is perhaps mass balance but what you can do and this is what they often do in the environmental area that they give certificates for example those carbon dioxide certificates and that you can treat them and everyone who is certified gets a certificate for a certain volume you can buy that And then we can buy and sell that amount, that volume of electricity as green electricity. It doesn't make no sense to establish a second net. Much too expensive. If that was necessary, green electricity never ever had a chance. Because it's too expensive. You would not be able to pay that. So this is, and this is for let's say small farms. They can be certified that they produce sustainable. They get a certificate and then there should be a platform that companies can buy that certificates. We have that, for example, with the electric cars. This is, if somebody provides electric power for the cars, he gets a certificate and he can sell that certificate to the gas industry. to the gasoline industry in order to make them able to fulfill their reduction commitments. All those things.

So this is the tray of certificates. They have that here on the RSPO platform, Round Table of Sustainable Palm Oil, RSPO platform, but this is widespread, especially in the environmental part. So then the question remains, if you want to have GMO-free soy, you can do that identity preserve through segregation, but you cannot, if you really want to have GMO-free soybeans or soybean meal, you have to do that with identity preserve through segregation. Otherwise, you run the risk that you have soybean or soybean meal that is mixed up with the with genetically modified. So these, if the products are not the same, or if you feel that the products are not the same, so that you make a difference between GMO-free soybeans and GMO soybeans, they are not like products, then of course, identically preserved and mass and segregation are the appropriate means to supply consumers with a product. If you look at palm oil, and you see that there is no difference between palm oil, no physical difference between palm oil that is produced sustainable and not sustainable, or certified and not certified, then the question is, what is the appropriate system to do here?

There are advantages and disadvantages to all systems, but you do not have to fear to poison yourself if you do that with book and claim. The same is for, you pay for the green electric power, but nothing happens if you get atomic power. So maybe because the book and clay thing is appropriate because it's feasible, and the other thing is not feasible. Okay, so this is how that might work. or is relevant within the markets, whether to really segregate them or not. With organic products, if you really want to have it organic and you suppose that organic is the healthy alternative, then you have to do with identical preservative segregation. If you just want to support organic production and you know that or you mean to know that there is no difference between organic products and non-organic products then you can do that too and because these are the cheaper systems more of your price premium goes to sustainability if you look for example fair trade fair trade guarantees a relatively high price and price prices at the coffee market or the cocoa market. But a lot of the price premium that you pay goes to segregation, goes to the small value chains and so on.

Trends in Protein Feed Production

So if you want your money to go really to producers, those value chains or for implementing those regimes for making it possible. The other thing then that we have already touched or stroke is the protein feed and the protein feed is especially relevant if you look at the overall production of animal products. It increased, and we start here again with the 90s. It increased dramatically. We have on the left-hand side axis, we have the meat, the eggs in million tons, and we have the milk in million tons, but it's much higher. So according to the data of the FRO, increase in the production, and this means especially for poultry production, for pig production and for egg production. For milk, for ruminate, so the cattle, it's a little bit difficult and different because they have a lot of their protein they have from the grass and from the silo that they get. If you look at the Pig production, we will talk about pig production once more when we look at the pig market. But you see that the pig production increased in China. And we start here at 1961. We see that here, that is the African smite fever in China, so that they had to kill a lot of their pigs.

But still the growing thing is China. If you look here, in the statistics that there was nearly no pick in China. I suppose that the coverage of the statistics changed during time. I cannot imagine that a country that is supposed to be from its cultural background, a country What is true, obviously, that in the beginning of this, at the mid of the 70s, there was a state initiative to increase pig production. But if you look at the statistics, and especially at the long-term statistics, you always have to consider whether the coverage of statistics changed during that time. And if you suppose that all the small covered by the statistics, and there is structural change during that time, then you will find that the coverage changed during that time. Okay, we have the same with the poultry production. You see that pig production is much concentrated in China, so half of the pig production takes place in China. With poultry production, really imagine trees too, because there are no cultural boundaries for consuming poultry. With pigs there are, and with cattle there are too.

But higher trees too, and especially then, many trees in some of the countries that, for example in Brazil, that produce the soybeans, so they are clever enough now to establish their own poultry production to use the raw material themselves instead of exporting them. And so we see that the main consumer of protein meals from oilseeds is China, the EU, a little bit in Brazil and the US. So these are the countries that are dominant in especially poultry, pig and milk production. Here you see The graph we see during the last 10 years, China is about 30% according to the statistics, the EU and the US 40 or 12%. And they, one, two, three, four, big five, they cover about two thirds of the markets of the protein.

And this is soy meal equivalent, right? All oilseeds, but measured in soybean meal equivalent. It's normally... nearly oil seed meal and soybean meal because soybean meal has about 80% of the yield. And the question is why is that so relevant? And then we come to the efficiency of animal production. So this is closely related. The efficiency for meat production is normally measured in feet conversion later. So how much feet do you have to put into the animal in order to have a gain of one kilogram of light weight? Any idea how much you have to do for pigs? Make a guess.

Per one kilo of weight gain. Life weight. Not to schnitzel. 10 times more I guess I don't know less or more so it's very high so if you have an efficient feeding regime you need in Germany so they say 2.7 2.6 kilogram of feed in order to have live weight. But you know, if you slaughter them, you have a lot of things out, the intestines and so on. And then it is a little bit different. So the conversion rate between live weight and slaughter weight is about 0.8 because you have all the other things out. And then of course you have still the bones in it. And so if you look at your schnitzel, It's not 2.7, it's of course you need more. So let's say we have 0.8 and then let's say double. And poultry is even more efficient. You need a 1.5, 1.6 for life. But you need much more protein in that. But still we have that. And then you can see the efficiencies. adapted to the needs of the animals then you need not so much of course you can feed some off for from the food industry and so on you need more it's in the end quest cost count but so you can compare that and therefore you need a feed that is really adapted and the protein content and the protein composition of is relevant.

The Importance of Protein in Meat Production

And for the efficiency of the meat production and the quality of meat too. And the protein quantity and the quality, they differ in the oilseeds. The compound fuel industry now, or today, is able to enrich the protein use by artificial protein acids. the pattern of protein is relevant for the animals you know from a fertilizing that i know that we have a quarter two but just the last thing the barrel with a different I know that these things are called Dowling German. So these are where the barrel is constructed. And the idea is always that what is in the minimum here is relevant for the volume you can fill into that dam. So if it's here, then all they are here, then it's this one, you can fill it here, if it is here, you can fill it with a volume until they hit there. There's no way to get more in it. And this is the idea of fertilizing, and this is the idea of feeding the animal. You always have to get a balanced thing, and if there is some nutrient in the minimum, then you can feed them whatever you want, they will not for fertilizing if you have not enough potassium or something like that in that plant. That plant will not grow. Not enough nitrogen in that plant will not grow. You can fill all the other nutrients in that. No need. And no positive effect. And this is something we will go on with that tomorrow. That is relevant for the feeding industry and why these markets are so relevant and why the protein pattern is so relevant.

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