rapeseed oil market
Refined rapeseed oil prices have moved higher over the
past week with support coming from some concerns over a
return of below normal temperatures and the impact on the
emerging winter rapeseed crop. Some additional support
is also coming from a weakening Sterling-Euro and strong
demand for EU rapeseed oil, as prices are still competitive to
competing veg oils. Generally, the rapeseed oil market has
been relatively quiet over the past few weeks and the rapeseed
futures market eased yesterday but prices are still trading
up sharply over the past few months as old crop supplies are
looking extremely tight. There has been a significant switch in
demand from the sunflower market as well as a large increase
in exports to China, reported to be around 170,000-180,000 or
up to 60% of total exports between January to March this year.
This is despite the fact the EU is expected to import record amounts of seed this year to meet domestic demand and highlighting that although prices appear high, they are still competitive in the world market. Despite further restrictions and lockdowns across the continent, biodiesel demand is reported to be rising, helped by firmer crude (mineral) oil prices. Crude oil prices are firming this morning due to increased demand from China and tensions in the Middle East. Brent crude oil is currently trading around $63.52 a barrel. Just a reminder that biodiesel normally accounts for 60% of rapeseed production. As discussed in previous reports, the prospect for EU and UK rapeseed production has been falling in recent months over adjustments to due some problems in France at the end of last year and there are now concerns over the return of below normal temperatures and frost to newly emerging crops (which were initially supported by recent warmer temperatures). It is still too early to predict but a severe frost across the Northern and Eastern Europe could cause some damage but there maybe some positive sides to this as it may help curb infestation this year, particularly cabbage stem beetle which has had a big impact on crops in recent years. The EU and UK are still expected to produce a crop unchanged to slightly higher this
year, with poor crops in the UK and France expected to be offset by an increase in Germany and parts of Eastern Europe including Romania and Bulgaria.
Production has stagnated in the EU over the past few years around the 17 million tonne level, down sharply from the highs reach in 2014-15 when production peaked at over 24 million tonnes. This has increased the reliance on imported seed to meet domestic demand sourced mainly from Australia, Ukraine, and Canada for the biodiesel sector only (as it is genetically modified). So, any further losses in the EU crop will make it more reliant on world production and particularly Australia as production is already forecast to be lower than expected in the Ukraine this year. However, we should see some demand
switch back to sunflower later this year if there is an expected recovery in production and prices. More “normal” weather conditions for the remaining growing period are needed to maximise domestic production. According to a report released last week, the Russian government has agreed a formula-based export tax system for
sunflower oil and a higher export tax for sunflower seeds, as part of initiative to try and address domestic food price inflation. The country has brought in several export taxes for sunflower and grains since December in its attempt to try and limit rising food prices in the coronavirus pandemic.
The report from the country’s prime minister added that the new formula-based export tax on sunflower oil will start from September, for one year. However, this may not be needed if
new crop prices fall as expected as long as production recovers in the coming months. We are yet to see some official crop estimates for either Russia or Ukraine but there are hopes that production could rise by 2 million and 2.5 million tonnes, respectively even if production reaches the same time as 2019-20. There are already ideas that planting could rise due
to the current extremely high prices, but market players are nervous about making forecasts after hot and dry weather conditions had a significant impact on production.
Oil World is the latest publication to forecast that EU sunflower production will rebound sharply later this year, and sees the crop around 10.4 million tonnes, up around 1.7 million from its estimate of 8.7 million last year assuming “normal” weather
conditions this year. This ties in with the recent forecast from the EU commission at around 10.82 million tonnes, based on a higher planted acreage, up sharply from 8.73 million last year and up from the 5-year average of 9.65 million. The Oil World report added that Romania could produce a record crop this year of around 3-3.2 million tonnes after being hit
sharply last year due to drought. Weather conditions have hit all major crops over the past 12 months so we can be forgiven for being cautious until we see conditions around July-August. For now, prices will remain extremely firm.