Chart of the week (26)

Prices for the two rapeseed crops converge

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The comparatively low producer prices have dampened trade in the upcoming rapeseed crop for a long period of time. As a result, less rapeseed than usual has been bound in contracts to date. June bids for rapeseed on the cash market saw a massive decline in the wake of substantially declining rapeseed prices in Paris and slow demand. Prices 'free to the Lower Rhine' as at the end of the month were reported at EUR 352 per tonne, down EUR 19 per tonne from the previous month. Against this background, there was hardly any rapeseed offered. Taking advantage of the firm prices of the past few months, farmers contracted into agreements for the supply of their usual quantities in 2016/17. These would amount to approximately 30-40 per cent of the estimated harvest. Before offering anything, farmers are now waiting for the harvest to start and provide first crop figures. Rapeseed was not spared by the poor weather that affected many European areas. Drought in the east and heavy rainfalls in the south-west and south-east of Europe have reduced the yield potential. To date, MARS experts have projected the yield at 32 decitonnes per hectare. Although this figure would exceed the long-time average by 1 per cent, it is down 1 decitonne per hectare from the May 2016 estimate.

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Chart of the week (25)

Volatile soybean meal prices curb demand

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A volatile euro rate ahead of the Brexit referendum is generating substantial price movements. However, soybean meal remains at a high level, putting an additional damper on demand. The UK's referendum on EU membership is creating uncertainty in the international finance and futures markets. According to Agrarmarkt Informations-Gesellschaft mbH (AMI), the uncertainty also has an impact on prices for soybean meal imports in that prices are adjusted daily – and sometimes substantially. Nevertheless, at around EUR 390 per tonne for 44 per cent soybean meal and EUR 420 per tonne for 48 per cent soybean meal, wholesale prices continue to be at their highest level in 17 months. In view of the exceptionally large price volatility, there is great uncertainty among market participants, especially because they speculate on price reductions in the wake of the upcoming US soybean harvest. First, however, markets must stabilise, which could take some time if Britain actually leaves the EU-28.

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Chart of the week (24)

Weak palm oil prices force down vegetable oil price index

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The vegetable oil price index of the Food and Agriculture Organization of the United Nations (FAO) dropped by 3 per cent in May 2016, interrupting the upward trend seen since January. Following a sharp rise by virtually one fifth since the beginning of the year, in May the upward trend was stopped for the time being. Prices for palm oil, the world's most important vegetable oil, saw a sharp drop in the wake of slack global demand combined with a surprisingly high output in the top palm oil producing countries. According to information published by Agrarmarkt Informations-Gesellschaft mbH (AMI), the index of 163 points was down 3 per cent from the previous month, but up 6 per cent on the previous year's level. The FAO price index measures the changes in international prices for ten different vegetable oils, weighted with their export shares in world trade. The Union for the Promotion of Oil and Protein Plants e.V. (UFOP) believes that raising the biodiesel blending requirements for biodiesel from palm oil is the only choice that is immediately effective on a large scale in the palm oil producing countries. The example of Malaysia illustrates this point. The country recently increased the blending quota to 10 per cent. Along with EU-based refineries producing hydrogenated vegetable oil (HVO), the chemical industry also benefits from this pressure on prices. UFOP points out that in Germany, the entire rapeseed crop has been certified as sustainable to meet legal requirements. According to UFOP, the leading palm oil exporting countries continue to be far from meeting this kind of standard. In fact, EU politicians should take this year's forest fires in Indonesia as a warning to further develop the sustainability requirements for biofuel feedstock specified in the European Renewable Energy Directive, instead of virtually abolishing them as the current funding period expires in 2020, UFOP suggests.

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Chart of the week (23)

Heavy rains damage French sunflower crops

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The sunflower area in France, the EU's fourth biggest producer of sunflowers, will likely be significantly smaller than expected. Consequently, the EU Commission could reduce its previously positive area forecast to project negative figures for 2016. France apparently suffered significant losses as heavy rains caused flooding. The French ministry of agriculture currently estimates the sunflower area at 587,000 hectares, down 5 per cent from a year earlier. The EU Commission projected 619,000 hectares for France still in May. According to Agrarmarkt Informations-Gesellschaft mbH (AMI), the Commission's forecast is still very vague anyway. The experts in Brussels have previously put EU sunflower production for the 2016 harvest slightly higher than a year earlier. However, given what has been happening not only in France, the previous year's level will probably be difficult to attain.

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Chart of the week (22)

Rapeseed prices rally

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Cash market prices for rapeseed have gone up considerably and exceeded the previous year's level for several weeks. Producers are paid more than previously also for new-crop contracts. The upward trend continues for the time being given the significantly tighter 2016/17 supply. Rapeseed for prompt delivery currently fetches on average EUR 359 per tonne free storage facility. This translates to a rise of EUR 6 per tonne on the previous year. Buyers accept to pay EUR 346 per tonne for new-crop material. This is even a EUR 11 per tonne surge from the same time a year earlier. According to information published by Agrarmarkt Informations-Gesellschaft mbH (AMI), with the exception of only a few locations, little new business is generated despite rising prices in the old-crop positions. The reason is that supply is very tight. Interest in contracts is also small, because farmers speculate on additional price increases. Such increases are likely because global supply declines while 2016/2017 demand will presumably be brisk.

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Chart of the week (21)

Diesel prices rally substantially

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Prices for partially taxable agricultural diesel are on a firm trend, moving closer to those for biodiesel and almost reaching the level of rapeseed oil. The trend is driven by a massive rise in crude oil prices. The nearby futures price on the NYMEX currently stands at just under the mark of 50 USD per barrel, hitting a eight-month high. The competitive position of biodiesel at the wholesale level has improved over the past few weeks. In other words, standard biodiesel having a potential greenhouse gas emission reduction of around 60 per cent over fossil fuels currently costs 72 euro cents per litre. This is only 7 euro cents per litre more than agricultural diesel. At the beginning of April 2016, the difference still amounted to almost 15 euro cents per litre. The surge in diesel prices is due to a massive increase in prices for crude oil. According to Agrarmarkt Informations-Gesellschaft mbH (AMI), crude oil prices are driven up by rising global demand combined with declining supply. Rapeseed oil prices in Germany also trend firm based on scarce nearby supply and climbing feedstock prices.

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Chart of the week (20)

Oilseed meals increase in price

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Prices for oilseed meals have soared over the past few weeks. The key driver was, first and foremost, the sharp rise in soybean prices. However, the sometimes tight supply also lent support to asking prices. Soybean meal is currently at its highest level since the end of July 2015. According to information published by Agrarmarkt Informations-Gesellschaft (mbH), wholesale prices for 44% soybean meal most recently overshot the level of EUR 350 per tonne, while high-protein meal (48%) was in excess of EUR 380 per tonne. The sharp upturn in prices, which started early April 2016, was primarily driven by the surge in raw material prices in response to the poor Argentine soybean harvest. Currently, what is driving prices up is the slow pace of sowing in the US. Consequently, soybean meal is also getting increasingly expensive. Buyers now hope that the boom will wane. However, the prospects for another tightness in global supply with declining ending stocks are likely to maintain prices at high levels for the time being. Rapeseed meal most recently exceeded the EUR 225 per tonne mark. Tight nearby supply has sent prices rising to a level last seen seven months ago.

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Chart of the week (19)

2016/17 global soybean demand exceeds output

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The coming marketing year's demand for soybeans is set to outpace production by approximately 4 million tonnes. This is the outcome of the preliminary USDA estimate. Nevertheless, supply to the market will be more than sufficient, as ending stocks are expected to decline by 74 million tonnes to 68 million tonnes. According to this first official forecast, stocks would still be at the fourth highest level on record. The reason for the reduction in stocks is that consumption is projected to climb by around 10 million tonnes, to a historic high of just under 328 million tonnes. At the same time, production is estimated to rise by 8 million tonnes to 324 million tonnes. This is also the largest soybean output in history. According to information published by Agrarmarkt Informations-Gesellschaft (mbH), the surge is first and foremost based on an increased forecast for Brazil and India compared to the previous year. China and India are the main driver in boosting demand, as they have been in recent years.

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Chart of the week (18)

Low forecast of 2016 EU oilseed crop supports prices

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Total 2016 oilseed production in the EU-28 could see a slight rise from the previous year. However, whereas an increase is expected in soybeans and sunflowers, the rapeseed harvest could dip further. This situation supports prices. The EU-28 member states are estimated to harvest 31.6 million tonnes of oilseeds in 2016, approximately 200,000 tonnes more than a year earlier. According to Agrarmarkt Informations-Gesellschaft (mbH), the rise is accounted for by a growth in sunflower and soybean output. In other words, the sunflower harvest is expected to increase by around 8.1 million tonnes (approximately 4 per cent) based on a slight expansion of sunflower area. Soy production could increase by 13 per cent, to a record peak of 2.3 million tonnes. By contrast, EU rapeseed production is expected to drop. The European oilseed associations Copa/Cogeca and Coceral peg the decline at an estimated 400,000 tonnes, to 21.2 million tonnes. The associations put the slide down to the slight reduction in rapeseed area. Yields by hectare could exceed the the long-term mean.

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