Update prepared by ISTA Mielke GmbH – Global Oil World analyses and forecasts for oilseeds, oils & fats and oilmeals in Hamburg, Germany. On www.oilworld.de more details are provided about the company profile and the individual services.
The severe drop in mineral oil prices to the lowest level in almost 20 years caused a downward spiral in EU rapeseed and rapeseed oil prices in the past two weeks. But we expect EU rapeseed prices to recover in the near- to medium term, primarily in the new-crop positions, based on the following scenario:
EU rapeseed supplies are forecast to decline further in 2020/21, following lower than initially expected winter rapeseed sowings and unusually low stocks expected at the end of June. This will require ongoing large imports of rapeseed & canola. However, recent weakness in EU rapeseed futures significantly reduced the price premium of vis-a-vis canola in Winnipeg, curbing margins of GM canola processing in Europe.
Repercussion of the coronavirus on EU rapeseed oil demand for usage in biodiesel will be the key swing factor to watch. The effects of the crisis on the agriculture sector are partly opposed. While vegetable oils are fully exposed to the bearish spillover effect from the energy sector so far, oilmeal prices rallied towards the end of this week owing to the prospective supply bottlenecks.
Total diesel usage is seen declining severely in key European countries in March and April and probably beyond owing to movement restrictions and shrinking industrial production. The disrupted demand from biodiesel producers was mainly behind the steep decline in prices of rapeseed oil and rapeseed by 10% and 7%, respectively, in the week to March 19. In the EU-28 approximately 57% of rapeseed oil usage took place in the biodiesel market in recent years.
The recovery in this year’s EU rapeseed production is likely to turn out smaller than previously expected. While replenished soil moisture supplies are boding well for a further recovery in average yields in key producing countries (primarily Germany), actual sowings of winter rapeseed apparently turned out below initial estimates, with the biggest downward revision in the UK.
We consider it likely that the rapeseed area in the EU even declined marginally from last year’s already low level to about 5.4 Mn ha (down 0.1 Mn ha). This is likely to limit the recovery of EU rapeseed production to only about 0.3 Mn T this year, already assuming a 4% increase in the average yield to 3.21 T/ha. We have scaled back our crop estimate by about 0.4 Mn T from our January forecast to 17.29 Mn T, trailing the five-year average until 2018 by 4.4 Mn T or 20%.
The impact of the lower than expected EU rapeseed production will be compounded by unusually low stocks to be carried over into 2020/21. But there are still many uncertainties, among them:
1) Biodiesel demand: What will be the impact of the prospective drop of biodiesel usage in the EU in March/June – following the implementation of movement restrictions throughout Europe to slow the spreading of the coronavirus – on rapeseed oil demand?
2) Rapeseed crushings: Lower than previously expected demand from the energy sector may additionally curb rapeseed processing in coming weeks. We already assume a drop in crushings by 0.5 Mn T in Jan/June 2020, owing to unusually tight rapeseed supplies. However, lower oil demand as well as logistical constraints, viz. availability of trucks to move seeds and meal and/or forced shutdowns, may additionally curb EU rapeseed crushings in coming weeks.
3) Imports of Canadian canola: Actual EU imports of Canadian canola may turn out below initial estimates, given the limitations of usage of canola oil (exclusively GM) outside the biodiesel industry. Also, the import margin has taken a serious hit in the week to March 19, with the premium of EU rapeseed futures over canola in Winnipeg (May positions) dropping to only 58 US-$ per tonne (vs. 82 on March 11). In new-crop positions the spread also deteriorated significantly, limiting purchases for shipment in July/June 2020/2021 for the time being.
OIL WORLD (ISTA Mielke GmbH, Hamburg)