June 4, 2011

 

EU's rapeseed output drop to lead to high costs, tight stocks

 

 

A slump in EU's regional rapeseed output and growing Chinese demand keep world supplies tight, also resulting in sharp rises in the cost of oilseeds into next year, analysts said Friday (Jun 3).

 

The European November rapeseed contract on the NYSE Liffe exchange has risen nearly 16% from the low of EUR410.50 (US$600.83) a tonne touched on May 6 as fears for the crop have increased. At 1210 GMT, it was up EUR1.75 (US$2.56) on the day at EUR480.75/tonne (US$703.65).

 

Poor winter planting and the worst drought to hit Europe for decades are expected to cut Europe's rapeseed crop by 1.5 million tonnes to as little as 19 million tonnes in the 2011-12 season, said analyst David Eudall of the UK's Home Grown Cereals Authority.

 

In Germany, the EU's largest rapeseed grower, the harvest is expected to fall to 4.5-4.8 million tonnes this year as the dry weather takes its toll on already under-developed crops, said grain merchant Toepfer International.

 

Productivity in the region's other major agricultural powers is also expected to decline, with France's rapeseed yields forecast to fall 4.3% on-year to 3.1 tonnes a hectare and the UK's a whopping 8.1% to 3.2 tonnes/hectare, according to May estimates from the EU's crop monitoring body.

 

The HGCA's Eudall said the fall in production is expected to hit the EU's biodiesel production hub Germany hardest. The country has a capacity of around five million tonnes a year - almost a quarter of the EU's 21.9 million-tonne biodiesel sector - according to the EU biodiesel association EBB.

 

"The majority of crop losses are being seen in Germany and what's made it worse is that last year there was a fire in one of their crushing plants which is expected to come back online," he said.

 

Demand for biodiesel, which is blended with fossil fuels to create a more environmentally-friendly form of transport fuel, however, is expected to remain firm as EU regulations mandating the use of sustainable fuels come into force.

 

Refiners will have to boost imports to make up for the domestic shortfall, said Eudall. He forecast shipments from Australia will rise 800,000 tonnes on year to around two million tonnes, while Ukraine and Russia will also boost exports.

 

Soyoil from the US and Brazil could make up some of the deficit as well, which he said is expected to peak in early 2012. "It looks like we're going to need about 1.5 million tonnes in the first and second quarters of 2012," he said.

 

The government has largely held off importing in recent months, preferring to sell from state stockpiles to cap surging market prices. But forecasters expect the world's largest soy buyer to turn to international markets next season to replenish low inventories.

 

The USDA's Beijing attache predicts China will buy a record 58 million tonnes of soy next season, up 5.5% on-year, putting increased pressure on already tight world markets.

 

Eudall said he expects demand to rise later in 2011 and peak early next year, just at the time when EU buyers will be seeking more supplies. "The market doesn't have a comfortable outlook for more than the next four months," he said.