July 17, 2012

 

Rapeseed prices may drop 8% after huge Canadian harvest

 

 

As a record-large Canadian harvest will flood the market, rapeseed prices are forecast to be about 8% lower at year's end than they are now, according to analysts polled by Reuters.

 

Prices often drop late in the year as the harvested oilseed comes to market, but not always, a recent exception was in 2010 when prices for rapeseed, as well as a few other crops, rose to year end.

 

The ICE Canada spot rapeseed futures contract is forecast to plummet to CAD574.80 (US$567) per tonne by December 31, 2012 from Friday's (July 13) settled price of CAD623.90 (US$615), according to the average estimate of the 11 traders and analysts in the poll.

 

Canada controls more than two thirds of global trade in rapeseed, an oilseed that is crushed mainly to produce vegetable oil for human consumption and meal to feed livestock.

 

An intense drought in the US Midwest, that has slashed projected supplies of soy, combined with drought damage earlier to South American crops, pushed the rapeseed price to its highest this spring since the 2008 food-price scare.

 

Canadian farmers responded by planting their biggest-ever rapeseed area, and mostly favourable weather has them on track for a record-large harvest.

 

"What goes up must come down," said one Canadian trader. "December is a long way off. The market's current euphoria may be a distant memory by the time the New Year's ball drops."

 

Big supplies and buyer resistance to paying toppy prices look to bring rapeseed back to Earth, analysts said.

 

"I think there's going to be a degree of demand destruction," said Errol Anderson, analyst at Pro Market Communications in Calgary, Alberta.

 

There was ample domestic and export demand for rapeseed in 2011-12, the crop marketing year that ends July 31, to prop up prices. This year Canadian rapeseed crushers have processed a record-tying 6.3 million tonnes as of last week and exports of the main product, rapeseed oil, were up 12% from August through April, compared to the year-earlier period.

 

The biggest question for most rapeseed traders is how far it will fall. Nine out of the 11 see a price lower than the current spot price. Price estimates ranged from a low of CAD443 (US$437) - a level nearby rapeseed hasn't touched in nearly two years - to a high of US$690, which would just exceed recent highs for the July contract and represent the highest spot price since 2008.

 

The big rapeseed harvest coming will knock prices down to size, said Charlie Sernatinger, analyst at ABN AMRO Clearing in Chicago. In a separate Reuters poll on Friday (July 13), traders and analysts estimated, on average, a record-large harvest of 16 million tonnes.

Rapeseed prices typically track US soy as much as their own supply/demand factors, however, as both oilseeds compete in the global vegetable oils market. If trend-setting soy prices, which recently notched an all-time high, keep rising in the second half, rapeseed could get dragged along. But a Canadian rapeseed trader said fundamentals, such as tight oilseed stocks to begin the 2012-13 crop year, favour continued high prices for rapeseed.

 

"This year will be the best ever for producers. Tight carry-ins (from 2011-12) and what appears to be a crop disaster in the making in US crops, plus some Black Sea problems should add up to a bull market," he said.

 

The biggest wild card in rapeseed prices, along with other commodities, is likely to be the level of angst over Europe's debt crisis, the trader said.