May 8, 2012

 

EU rapeseed cost to remain high

 

 

The pullback in EU rapeseed costs, which dropped on Friday (May 4) to a five-week low, may only be temporary, Rabobank said, lowering the bar further on Europe's crop forecast.

 

The bank pegged the EU rapeseed harvest at a six-year low of 17.5 million tonnes, and warned that even this figure was likely generous, given the extent of winterkill damage in eastern countries such as Bulgaria and Romania, where up to 80% of the crop may have been affected.

 

"With so much uncertainty surrounding the actual extent of the winterkill damage and future weather developments, we see the potential for further production downgrades," Rabobank said in a report.

 

"We remain cautious that even our current estimate may be too high."

 

The figure is the weakest of a series of forecasts from major commentators, with Strategie Grains pegging the crop at 17.6 million tonnes, and Oil World on Tuesday downgrading its forecast to 18.21 million tonnes.

 

And the low harvest means rapeseed prices are set to stay high especially given the weather uncertainty in Australia and Canada, on which the EU will rely to meet demand of more than 20 million tonnes, and the high values of alternative oilseeds,

 

"Weather risks and continued tightness in oilseed availability outside of the EU are likely to continue fuelling the rally in Paris rapeseed prices," Rabobank said, adding that this would provide extra fuel for the broader oilseeds rally, which drove Chicago soy futures last week to their highest since 2008.

 

"The crop losses and potential weather risks to the global rapeseed crop will continue to drive oilseed complex prices higher.

 

"The underlying fundamentals across the entire oilseeds complex remain bullish."

 

The comments come amid growing comment over a lack of rainfall in Western Australia, the top rapeseed-growing state in Australia, where analysts have pencilled in the next harvest well above the record 2.9 million tonnes achieved in 2011-12.

 

"Monthly rainfall was well below average for most of the agricultural area," Western Australian farm officials said on Friday. "Subsoil moisture has declined in many areas and growers are waiting for breaking rains to allow planting to commence."

 

At Commonwealth Bank of Australia, Luke Mathews flagged "patchy" rain throughout the Australian grain belt over the past week

 

"Rain totals were generally lower than expected and coverage was patchy. More significant rainfall is required to improve conditions for planting and early plant establishment," he said.

 

However, conditions have so far been generally favourable for rapeseed, the rapeseed variant, in Canada, which is set for harvest from August.

 

Trend yields would lift the Canadian rapeseed crop above 16 million tonnes within sight of the EU harvest Rabobank said.

 

However, the direct implications in filling Europe's supply hole are moderated by Canada's increasing domestic crush, and by limits by some EU countries on imports of genetically modified crops.