Horror stories with Mike & Nicole (because what’s scarier than oil markets?)

Speaker A: Foreign. Flavelle's Hot Commodity Podcast series. Empowering clients with commercial intelligence, supply chain expertise, and risk management solutions. Good afternoon, everybody. My name is Mike Coughlin, President and CEO of McKinney Favel, and today is October 30, 2026. And welcome to our Hot Commodity Podcast series. It is a spooky podcast today because it's right before Halloween, and I'm joined by Nicole Thom, Vice President, Information, Sales and Service, Myr McKinney Flavell. Hello, Nicole. How are you?

Speaker B: Michael. Who better to have on the pre Halloween, huh? Podcast.

Speaker A: Yeah.

Speaker B: Than the grim reaper of market. How appropriate was that? I know, right?

Speaker A: You. You went there. I just went right into the, uh. Yeah, we're gonna talk oils today.

Speaker B: Exactly. That was the hint. Yes.

Speaker A: There's no Kevin Combs talking sugar, you know, there's no, uh, Eric talking wheat.

Speaker B: No Maryland. Talking cocoa. Right.

Speaker A: Right

Speaker B: before. Nope. We said

Speaker A: no Risk Management by Sean. There's no corn by Craig. We're going straight for the oil.

Speaker B: Straight for the oils. The horror edition. Come on.

Speaker A: There you go. I think that's. It's apropos.

Speaker B: It is.

Speaker A: And, uh, I will say that, uh, you know, we had a great webinar this week, our seasonal Market Outlook webinar. And, uh, Nicole, you were on it talking a little bit about oil, so we'll touch a little bit on some of the stuff you talked this week. But for you IQ platform users, uh, that webinar is, uh, on the platform. And you can, uh, either view it again if you attended or if you're like, wait a minute, I had a silly meeting.

Speaker B: Yeah. And

Speaker A: I didn't see it. And, uh, I really want to see it. You can get on that IQ platform if you have no idea what I'm talking about. You can reach out to us and go on a test drive of our platform. You know, I tell you what, you can't live in procurement without our platform forms.

Speaker B: I agree.

Speaker A: Please,

Speaker B: please,

Speaker A: please, one final thing, and then we'll get started like us. Subscribe.

Speaker B: Yes,

Speaker A: please. Do it

Speaker B: as the kids say.

Speaker A: Yeah. Follow.

Speaker B: We want all your follows.

Speaker A: Yeah. I don't even care if it's your kids. Have them like us.

Speaker B: Yeah, that'll

Speaker A: do. We want. We want all the subscribers. Anyway, Nicole, shall we dive right into it? It's, uh, it's a pretty scary market. It has been for years.

Speaker B: It has been. It has been. You know, um, it's been a while since I've talked specifically, uh, about the oil market, so, um, let's do that today. But Before I get to the scary stuff, you know, kind of like a horror movie, you know, it starts off just normal, you know, you just walking through the corn fields or whatever, right? And everything's cool. So we're going to look at some of the more normal things of that we, uh, evaluate when we're trying to analyze these markets. And it is also that time of year, with the changing of the color of the leaves on the trees and the crisp autumn air, comes harvest, at least for the Northern Hemisphere. And, uh, so far so good as far as US Soybeans are concerned. Uh, as of, uh, earlier this week, we're about 79, 80% harvested, uh, for the soybean crop. And some of the early field reports are indicating that the yields are pretty good. And speaking of those yields, USDA's October report put that average yield around 53.1 bushels per acre. I don't see any inherent risk at that number, you know, give or take a bushel. But I think we're about in line. Uh, and with that production is expected to rise about 7% in 2627 to around 4.6 billion bushels. Now over to, uh, Europe, um, and specifically Sunflower, uh, always talk about the commoditized oils, the big volume oils, soy, canola, sun and palm in the case of Europe, uh, and the spring crop, sun is the big one. And this product there, I would say it's kind of a tale of two or three regions, uh, for the Black Sea crop, uh, that being Ukrainian and Russian production, which usually represents a good share of global production and or exports. And it looks like with roughly 85% of the crop harvested, the Ukrainian crop is going to be pretty good, up about 20, uh, or the yields, I should say are up about 20% year over year. So we got good, strong yields there and we'll see what that final production number comes in at about. And then for Russia, uh, they're expected to be near record levels, currently looking like somewhere between, call it 19 and a half and 21 million tons. Uh, and that would be up 2 to 3 million tons from 2025. Uh, now for the EU27, we have to effectively kind of cut that region in half. Uh, not perfect half, let me put it that way. But one side really felt the impact of this year's drought versus the other side. And the average yield for the entire region is, is, uh, at least at this state, uh, projected to be around 1.93-ish tons per hectare. And that's going to be, uh, pushed, uh, where it's at, you know, keeping, keeping that drought impact from being as bad due to uh, at least a couple of countries in Eastern Europe, Bulgaria and Romania. Once they finalize their yields, at least at this stage, the market is thinking that those will be up about 20% year over year. But west of those countries we have an opposite scenario with the yields expected to be much lower with France, Hungary, Austria, Slovakia and Germany all expecting significant year over year yield declines thanks to that drought. So when it's all said and done, uh, we might end up, you know, relatively flat, maybe a little higher, especially if this Black Sea, uh, stuff comes in much higher. We just need to get it into the world market. And then for Canada, Canadian canola, finally that harvest is nearly completed. We were super behind, uh, and again regional yields running average or below average in the prairies. So if you look into places like uh, southwest Manitoba, uh, your yields are averaging upwards of 50 bushels, uh, per acre. Pretty good. Saskatchewan, same scenario, looking good, around 40 bushels per acre. But once you get into that northwestern Manitoba region, that's where they, the producers seem to have struggled the most this season. And those yields could be looking like uh, something closer to 25 to 35 bushels per acre. I've seen stories of stuff even lower yet, believe it or not, uh, but that's Canada. Put it back, uh, in September anyway, put that average yield at about 41.8 bushels per acre. So even with expanded acreage or hectorage this year we're going to be looking at net, net very similar production, uh, to the year prior. And that latest production estimate is around 22 million tons. But there are some in the market who think that's, that will come down, uh, especially as they fully wrap up harvest and get more firm numbers in terms of that production. Now that's for the harvesting side of things. And of course harvest up here means it's planting season in the Southern Hemisphere, uh, and so far so good in South America. I will say, uh, Brazilian and Argentinian plantings are about 43% and 2% completed respectively. But both are ahead of last year's pace. CONAB is projecting that Brazilian production at around 181.6 million tons for soy. Uh, that's their latest reporting on it anyway. And the Buenos Aires Grain Exchange is expecting a crop of uh, a little under 54 million tons of soybeans for Argentina. Both would also be year over year increases, although the one for Brazil is a modest one, like less than 1%. And at least at this stage both seem attainable. One call out. I would, I would just, uh, highlight for buyers of soybeans, uh, and corn to a degree. And obviously we got to watch corn when it comes to soybeans, uh, but keep an eye on that weather in central, western, uh, Brazil. You know, it's been a little hot and dry in Mato Grasso, and that's where a lot of the soybean production takes place every year. I won't throw any, any numbers out there to alarm anyone, and frankly, we were not, we're not even halfway through the planning pace, so I don't think much can be determined just yet. But generally speaking, that's an area we want to make sure stays, uh, at least adequately moist. Because El Nino tends to have this drying effect in kind of the northern portion of Brazil with plenty of moisture in the southern portion of Brazil. And that is something else to keep an eye on. It's just, you know, there is a such thing as too much moisture. You want it when you're planting, you want it while that crop is growing, but you don't want flooding that leads to replanting. Uh, you definitely don't want any fungal issues towards the end of the season. So stuff to keep an eye on. So that's the, that's the low key piece of all this. Michael, you ready for the, for the scary stuff?

Speaker A: I do. I think I know where you're going, but yes, let's do it. So it's scary.

Speaker B: Let's get scary. So kind of remind, reminds me first, obviously the scary part relates to both palm oil market dynamics and soybean oil futures. And what I thought about when, when I was kind of wrapping my mind around what I wanted to speak about and knowing that this is right before Halloween. And if you know me, you know, I am a bit of a horror enthusiast, but I thought about kind of that scene in Ghostbusters. I know you remember this, Mike, where

Speaker A: the

Speaker B: sky starts to kind of look weird and you know, it's getting cloudy, but it's not like your normal rain clouds. And I think it was purple or something like that and it wasn't print, so it was a bad thing or the Fog is another movie. Uh, the original, by the way, for anyone wondering 70s, but when the fog is, you know, out there in the horizon and ominously starting to approach the coastline, that's kind of what it feels right now when it comes to both of these scenarios. Now for palm oil, we're entering that what's typically the rainy season for Southeast Asia. And I'll say, you know, it's a mixed bag at the moment. Malaysia has yet to turn materially dry. In fact, the moisture in Malaysia has been pretty good overall. Um, and they are actually swimming in palm oil stocks right now. Enough so that the Malaysian government is considering removing the export taxes to kind of get some of that moving. But the question for everybody is is this a temporary situation? Will we start to see more drying, uh, as the months progress and El Nio continues to strengthen? And I'll say currently anyway, the outlook for weather between November through March calls for below normal precipitation, particularly in the Sabah region of Malaysia. So keep an eye on, on that area of production and less rain in the peroc. I'm probably murdering that region between uh, February and March of 2027. So don't let the, you know, kind of stability or seeming stability of those palm oil markets get, uh, you too comfortable, uh, because, uh, I'll put it this way. When we looked at Saba as an example within, uh, Malaysia during the last super EL NINO In 2015 16, their monsoonal rainfall was around 45% of normal. So uh, definitely want to watch uh, that in the coming months. Then there's Indonesia. It's already drier than normal, uh, and the country has faced a large number of uh, or a number of wildfires so far this year. Uh, now that does seem to be improving. I will say that fewer hotspots today than, you know, eight weeks ago. And currently though, around 8% of Indonesia's accumulated 2026, uh, 26 hotspots were located around oil palm concessions. And that's all that can be confirmed so far, other than, you know, roughly 190 hectares of documented, you know, kind of burned oil palm, uh, acreage, which is still on the small side of things. But I would, I would definitely keep an eye on that because there was a little tidbit I came across recently. It said the peatland water tables in both Central, uh, and uh, Calimaton, that's a big region for uh, palm production and the South Sumatra, uh, region of the country. Those water tables have fallen to levels comparable to the 2015 El Nino induced drought. So we've talked a lot about the 2015, 16 last, you know, sort of super El Nino and kind of uh, tracking this one to see, you know, how much is the same, how much is different, etc. But I say all that to say you're going to need more than just occasional thunderstorms or occasional weather, uh, rain, uh, uh, scenarios to fix that. And according to BMKG that's Indonesia's meteorological Agency. I'm so proud of myself for saying that word. You

Speaker A: did it man. Really good job.

Speaker B: That was a tough one too. But according to that agency, almost 88% of the country received below normal rainfall during the first 10 days of October. So again, don't let that current Malaysia situation kind of lull you into complacency when it comes to this market. Better to be ahead, see it dip a little bit and, and think, man, I may have missed a penny or two on the downside than to be complacent and lose a nickel on the upside, uh, going into 2027 if any of this is, is uh, problematic. Which brings me to this next part regarding soybean oil futures as a big factor to watch as it relates to all of these markets. The level set a bit. I've been watching and waiting to see if these first half 2027 futures uh, contracts could successfully break what has been pretty strong near term support around that 65.50 a pound area. So far. No bueno. I don't know, we'll see what we get today. But whether or not we see that break anytime soon could very much depend on what happens in the next couple of weeks. As it relates to the geopolitical uh, situations and most notably the war with Iran. That's the one I think is the biggest one to keep an eye on. And I'm not strictly talking the immediate impact on crude oil futures or heating oil and how those tie into soybean oil future price dynamics which by the way we were just curious, uh, currently, and this is, you know, just uh, a snapshot in time. If you look at the Jan, uh soybean oil contract against the D crude oil contract, the correlation is currently near about 80%. January soybean oil against January heating oil is near 85%. And the correlation between the December contracts for crude oil and uh, and heating oil, I'm talking uh, West Texas Intermediate by the way, if you look at those two, it's extremely high at around 96%. So in that sense definitely something. Now you understand rising energy markets and why we got to pay so much attention to that as buyers of veg oils. But not only that, I'm also thinking about its impact on both the northern hemisphere winter crop and southern uh, hemisphere production costs for both of those. We got record high diesel, we've got expensive fertilizer. That doesn't necessarily set up a great scenario uh, for 2027. And that's why as much as we're watching what's happening with the weather, uh, and how that impacts production, we also got to think about, you know, tight pockets in some cases for a lot of producers when it comes to these input costs, uh, especially those that, that don't have, you know, some sort of government subsidies in place to try to help with that. And even then, you know, the government, the government subsidies are trying to keep pace with the inflation. So, and the, through most of this year anyway, the inflation comes first, gets higher, get the subsidy, then the inflation keeps going higher and net net doesn't really solve the problem. So look, I have no idea what's going to happen with these geopolitical conflicts. I will say that. All I'm saying is what happens, uh, has the potential to not only impact our prices, but also impact our production that subsequently further impacts our prices. So I guess I'll conclude with this. Again, kind of interesting, uh, markets right now. Totally understand that if you'd like to know more about the commercial market, like how 2027 negotiations are coming along, what sort of prices, uh, users are seeing out of the suppliers, what's happening in some of these specialty markets, like Oliver Avocado oils. Didn't touch on those today. And. Or what's happening with demand for all these oils. Uh, you can always reach out to me at nicole@mckinney hyphen flavelle.com. and that is N I, C O, L, E for all you weirdos who spell Nicole with an H. I'm just kidding.

Speaker A: You're

Speaker B: not a weirdo. Okay, you're not a weirdo.

Speaker A: But

Speaker B: I do want you to find me and not ask some random Nicole with an H in her name about edible oils because she might give you the wrong information. So.

Speaker A: That's right. And you bring up a very good point, Nicole. Great recap as always. Uh, the commercial information, that's where, uh, definitely shine. Not just the fundamentals, but, uh, you've got the data now what? Right?

Speaker B: Exactly.

Speaker A: That's what we like to say. All right, we're gonna wrap this spooky podcast up and wish everybody a happy Halloween and hope you all have some really good costumes out there. It is on a Saturday night too, Nicole.

Speaker B: Oh,

Speaker A: yes. You know, Halloween on a Saturday. So go have fun, be safe.

Speaker B: Yes, and

Speaker A: as I always like to say, live with an attitude of gratitude and enjoy every minute moment with your and family. Until our next podcast. Take care everybody.

Speaker B: See ya.

Speaker A: That concludes this hot commodity podcast episode. Log into McKinney M. Favell's IQ ingredient intelligence platform for in depth information on commodities, ingredients and market intelligence. If you're not a subscriber, visit mckinney-flavel.com to learn more.