June 27, 2007

 

USDA: China's 2007/08 rapeseed output seen to fall

 

 

China's rapeseed production for marketing year 2007/08 is expected to drop to an estimated 11.6 million tonnes due to low profits in recent years versus other crops, according to a US Department of Agriculture attache report posted Tuesday (June 26) on the Foreign Agricultural Services Web site.

 

However, China's rapeseed production is expected to increase moderately in 2008/09 as its processing industry hope a bio-diesel boom will boost rapeseed planting and are calling for more governmental assistance.

 

Preliminary forecasts of China's rapeseed production for 2007/08 are 11.6 tonnes, down 0.4 tonnes as compared with its post production estimates for 2006/07. This is 1.5 tonnes smaller than the official MY05/06 production data published by China's National Statistics Bureau (NSB). The planted area fell in 2007/08 to 6.6 million hectares, down six percent versus the previous year. The falling domestic production is mainly attributable to the low profit margin received by farmers in recent two years due to the bearish price for the oilseed products complex through late 2006. However, the lower 2007/08 production is currently buoying prices and is expected to result in a slight increase in 2008/09 planting.

 

NSB official rapeseed production for 2006/07 is reported at 12.6 million tonnes. According to China's National Grain and Oils Information Centre (CNGOIC), 2006/07 production is at 12.7 million tonnes based on a total planted area of 7 million hectares, down by 2.7 percent and 3.8 percent, respectively, compared with 2005/06 production. CNGOIC's June Oilseeds News estimated that rapeseed production in MY07/08 is likely to fall to 12 million tonnes based on a lower planted area of 6.6 million hectares.

 

The local agriculture officials acknowledged the falling trend for rapeseed area in major rapeseed growing provinces in recent years due low profit received from both absolute terms and other crops. It is estimated that the gross profit of rapeseed planting stood at US$180 per hectare in past two years as per household planted area ranges from 0.1 to 0.4 hectares with total gain from rapeseed production per household remained very limited. This is due to farmers' option to abandon winter crops or choose to work in cities, while others choose to plant winter wheat (grain crops are entitled to seed subsidies) for relatively better gains. Industry insiders reported that the situation is similar in other major producing provinces of Anhui, Jiangsu, Sichuan, and Chongqing as farmers opted to farm vegetables or aquaculture instead of planting rapeseed in winter.

 

Rapeseed yield remained stagnant because farmers devoted fewer inputs to rapeseed production. A senior rapeseed scientist complained that the advanced transplanting practice is being replaced with direct sowing by some farmers. Inadequate technical extension services are also blamed for bearish rapeseed production. Some researchers complain that some farmers still plant low yield and poor quality varieties, while expansion of new varieties remains difficult due to inadequate implementation of the seed law and new variety regulations.

 

Many industry insiders believe that the MY06/07 production was smaller than NSB data and the MY07/08 production is expected to decline further. The farm-gate price for rapeseed started relatively high and continued growing to between RMB 3.5 in Hubei, Hunan and Guizhou to 4 Yuan per kilogramme (kg) in Sichuan and Jiangsu. These price levels are on average more than 50 percent above the previous year. According to industry sources, the high price for rapeseed products are likely to remain as local production is expected to be small while import prices of rapeseed and palm oil also remain high. China's rapeseed production is expected to increase moderately in MY08/09, driven by an ongoing fundamental price increase for rapeseed, rather than the growing bio-diesel boom.

 

While bio-diesel production using rapeseed as a feedstock is currently small, bio-diesel development has attracted from China's government and industry since 2006.

 

According to industry sources, the cost of rapeseed-based bio-diesel is approximately US$190 per tonne higher than regular diesel. China's imports of vegetable oils (palm oil and soybean oil) are mainly for human consumption and remained strong at 6.9 million tonnes in MY05/06.  The strong domestic demand for vegetable oils for human consumption will continue to restrict economically feasible rapeseed-based bio-diesel production. If the current high price for rapeseed continues, the area for rapeseed may return to the historical area of 7.5 million hectares and total production at 13 to 14 million tonnes in next few years. However, the impact of bio-diesel on rapeseed production is unlikely to be significant unless the Chinese government provides additional support for crop-based bio-fuels.

 

The impact of China's rapeseed production on soybean imports is expected to be limited in the foreseeable future. China's soybean import growth is driven by the growing demand for protein meal due to surging demand from animal and aquaculture sectors. Imports of vegetable oils and soybean imports are also seen to remain strong as an increase of one million tonnes of rapeseed would add 350,000 tonnes of edible oil and 600,000 tonnes of meal. Rapeseed oil would also likely reduce soybean oil imports rather than soybeans due to the large capacity and efficiency of China's soybean crushing sector.

 

An additional half million tonnes of rapeseed meal would account for about one percent of the estimated protein meal supply for MY07/08. Thus, it is quite unlikely that the growth of soybean imports will slow down dramatically because of the expected moderate rapeseed production growth.