Sunflower oil is now the third largest exported vegetable oil globally, behind palm oil and soybean oil. Sunflower oil production and exports are growing particularly in the Black Sea region, with Ukraine (6.2 million tonnes) and Russia (3 million tonnes) exports now accounting for 80% of global world exports of 11.4 million tonnes, according to the US Department of Agriculture (USDA)1 report dated March 2020.
Despite competing with other vegetable oil for food use, sunflower oil prices are driven by different fundamentals than those that affect soybean oil and palm oil, the two major globally traded vegetable oils. Spot sunflower oil prices rose to over $800 per metric tonne in January 2020 (Graph 1) having increased by 18% over a 3-month period before rapidly declining by $100 (12%) in just two months.
This is a market with significant price movements, pointing to a clear need to hedge price risk. Graph 1 clearly shows that there is limited price relationship and correlation to existing futures benchmarks. Based on the data, the correlations for Black Sea sunflower oil are between 25% and 35% (the 12-month correlation figures for the returns are 35% versus Soybean Oil futures and 25% versus Palm Oil futures).
The main specifications of the contract are:
Assume that in August 2019, a Black Sea based sunflower oil crusher agrees with an Indian-based food processor to sell them 25kt of sunflower oil for FOB delivery in December 2019, at market price to be determined close to delivery. The Black Sea crusher is concerned that Black Sea FOB sunflower oil prices will decline between August and December and wants to lock in a price to protect their margin. By using Black Sea (Platts) Sunflower Oil FOB futures to hedge, the crusher can protect against downside price movements in the physical markets and is able to sell forward.
The chart below shows the historical Platts cash market prices for Black Sea sunflower oil FOB Ukraine since December 2018. The example below shows how a sunflower oil crusher could have protected themselves against the impact of falling prices by hedging with Sunflower Oil futures.
Source data: S&P Global Platts
Futures of 25kt (1000 contracts)
Sells December futures @ $750/tonne
Buys December futures @ $680/tonne
Futures gain of $70/tonne
Physical of 25kt
Prices December physical @ $680/tonne
EXAMPLE NET SALE PRICE WITH FUTURES = $680/tonne physical + $70 futures gain = $750/tonne (= December FOB sunflower futures price in August)
As well as being able to protect against adverse price movements in the physical sunflower oil markets and buy/sell forward, the Black Sea Sunflower Oil futures contract come with the safety and security of being cleared hence removing counterparty risk.
Key features of the Black Sea Sunflower Oil futures include:
For more information and details on how to access the contract to trade, please see our Black Sea page.
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