Chart of the week (03)

Vegetable oil prices recovered considerably

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The vegetable oil price index of the Food and Agriculture Organization of the United Nations (FAO) surged by more than 4 per cent in December 2016, reaching a three-year high. Nevertheless, the index is far below its January 2011 record. Prices for vegetable oils have risen considerably over the past few months. In December 2016, the vegetable oil price index reached the highest level since July 2014. It was especially driven by the rising prices for palm and soybean oil over the past year. Palm oil prices benefited from low global stocks and the continued shortage of supply. According to information published by Agrarmarkt Informationsgesellschaft mbH (AMI), prices for soybean oil firmed substantially in the wake of the recent poor weather conditions in key exporter Argentina and increasing demand from the biodiesel industry in the US, Brazil and Argentina. The FAO price index illustrates the changes in international prices of the ten most important vegetable oils in world trade. Since its lows in 2015, the index soared by more than 36 per cent. At 183 points, the December 2016 index was up 4 per cent from the previous month and just under 30 per cent year-on-year.

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Chart of the week (02)

Price advantage of rapeseed meal unchanged

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Due to the stability seen in the past weeks' rapeseed meal prices, rapeseed meal for use in compound feeds continued to have a price edge over soybean meal. The cost of GMO-free soybean meal was still clearly higher despite the current downward price trend. German rapeseed and soybean meal prices ex oil mill have moved little over the past few weeks. Since the beginning of December, prices asked for rapeseed meal have hovered around EUR 197 per tonne. Consequently, the price level is only slightly higher than in the same period a year ago (up EUR 5 per tonne). Soybean meal was valued at on average EUR 348 per tonne, up EUR 37 per tonne more than a year earlier. These small fluctuations in price hardly affected the price advantage of rapeseed meal over soybean meal. Over the past five weeks, savings amounted to on average EUR 1.86 per protein percentage, Agrarmarkt Informations-Gesellschaft mbH reported. Demand for rapeseed meal in compound feeds saw a slight decline in the wake of the overall decrease in compound feed production. By contrast, the use of soybean meal in compound feeds slumped by around 15 per cent.

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Chart of the week (01)

Large shortfalls in EU rapeseed market

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Supply in the EU-28 rapeseed market is much scarcer in 2016/17 than a year earlier. Although consumption is on the decline, the decrease in harvest volumes affects stocks and will increase the need for imports. The EU Commission calculates its outlook on a basis of a 2 million tonne drop in rapeseed harvest from the previous year, to just under 20 million tonnes in 2016. 2016/17 consumption will probably decline by 6 per cent to 23.4 million tonnes. Nevertheless, there is a shortage of 3.6 million tonnes of rapeseed for the supply/demand balance to be level. Imports from non-EU countries are expected to surge by 500,000 tonnes to 4 million tonnes, Agrarmarkt Informations-Gesellschaft mbH reports. Nevertheless, stocks are estimated to fall to 1.03 million tonnes, which is around 6 per cent down from a year earlier. The falloff is due to poor weather conditions at sowing and, first and foremost, a wet early summer that curtailed yields. EU production of rapeseed for the 2017 harvest is unlikely to rise. Dry weather, especially in France, delayed sowings and plant growth. Farmers had to plough up more land than normal. In the UK, farmers have reduced the rapeseed area for the 2017 harvest, because since the use of seed dressings was prohibited at the end of 2013 they have lost a great deal of their rapeseed crops to cabbage stem flea beetles and pollen beetles.

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Chart of the week (52)

German biodiesel exports on a slight rise

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German biodiesel exports over the first ten months of 2016 slightly exceeded those of the same period in 2015. The significant drop in demand for biodiesel from the majority of European trading partners was offset by an increase in shipments to the Netherlands and Poland. German biodiesel exports reached 1.25 million tonnes by the end of October 2016, exceeding the previous year's figure by 0.4 per cent. This means that the previous downward trend no longer continues. According to Agrarmarkt Informations-Gesellschaft mbH, the Netherlands continue to be the primary recipient country. The export volume went up by 37 per cent from the previous year, to around 485,000 tonnes.  Surprisingly, Polish trading partners purchased more than twice the biodiesel amount of the previous year. This moved Poland up to the second position among the main importing countries. By contrast, countries such as the Czech Republic, France or Austria reduced their imports by between 27 per cent and 56 per cent. Biodiesel exports to Switzerland and the US saw the biggest increases, with Switzerland raising its purchases by virtually 200 per cent and the US increasing imports by 350 per cent. However, at 36,000 tonnes and 49,000 tonnes respectively, the volumes were comparatively small.

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Chart of the week (51)

Smaller rapeseed harvest reduces stocks

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Global rapeseed consumption will clearly exceed production in the 2016/17 marketing year. This is likely to result in a decrease in ending stocks and changes in the flows of goods. According to USDA's December forecast, global rapeseed production in the 2016/17 marketing year is going to decline by around 3.5 per cent from the previous year to just under 68 million tonnes. According to information published by Agrarmarkt Informations-Gesellschaft mbH (AMI), rapeseed output is going to increase, in some cases significantly, in some countries, such as Australia or India, but the rise is not sufficient to offset the almost 10 per cent decline in both China and the EU-28. Since worldwide use of rapeseed oil remains unchanged while production is likely to drop by 3 per cent concurrently with rapeseed production, the global supply/demand balance for the 2016/17 marketing year is much tighter than a year earlier. Global rapeseed consumption is forecast to fall to just under 69 million tonnes, but the decline of 2.4 per cent is smaller than the drop in production. Consequently, rapeseed ending stocks are projected to shrink by more than 15 per cent to 5.5 million tonnes, which means that in terms of figures, global stocks would not even last for one month. AMI believes that due to scarce supply, farm prices are likely to remain attractive until the next harvest.

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Chart of the week (50)

UK rapeseed prices on the rise

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The tight rapeseed supply situation in the UK sent local spot market prices soaring. At the same time, lower availability markedly curbed shipments abroad. The small 2016 rapeseed harvest in the UK, which was down 30 per cent from the previous year, has had noticeable effect. The tight supply situation produced a sharp rise in spot prices. Since the beginning of November, wholesale prices rose by EUR 32 per tonne to, most recently, EUR 428 per tonne for delivery free of all charges. In other words, the premium over the futures quotes increased by EUR 15 per tonne. Relying strongly on shipments from abroad to expand the small domestic supply especially this year, the UK is now a net importer of rapeseed with little to offer on the global market. Whereas UK exports exceeded imports by 112,000 tonnes in 2015/16, in 2016/17 the country has had net imports of 6,600 tonnes to date. This situation is also reflected in exports to Germany. In October 2016, these rapeseed exports collapsed by just less than 85 per cent compared to the previous year. It seems also unlikely that any rapeseed will come from the UK in the coming months.

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Chart of the week (49)

Sharp rise in oilseed prices

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Firm prices for soybeans, palm oil and crude oil have sent prices for rapeseed on a sharp climb over the past few days. At the futures exchange in Paris on 6 December 2016, the nearby closed at EUR 412.50 per tonne, the highest level since April 2014. Consequently, rapeseed increased in value by 6 per cent in only three weeks. In the same period, US soybeans even rose by 7.5 per cent. Above all, soybeans benefited from an unexpected buying interest by China. Also, the falling dollar improved the prospect of future business. At the same time, the incipient weather markets in South America made an impact. More specifically, as Argentine growing conditions for freshly sown beans seemed to be too dry, renowned analysts already reduced their harvest estimates. In other words, the chances are that the crop could be even smaller than the previous year. This situation has lent support to prices and shifted the focus to the development in South America. However, as conditions in Brazil have been fine, the crop forecast remains at an estimated record high of 102 million tonnes. German rapeseed prices also benefited from the firm prices for palm oil in Malaysia. The foreseeable scarcity of supply has already supported prices over the past few weeks. Given a weak domestic currency that encourages exports, the gap between supply and demand could narrow further, especially because this month's palm oil output is estimated lower than the previous month's volume. Palm oil prices went up 13 per cent over the above-mentioned three-week period. Due to tight domestic supply, rapeseed prices in Paris did not completely reflect wholesale prices in Germany. In some cases, oil mill owners accepted a premium of EUR 13 per tonne for nearby supplies, according to information published by Agrarmarkt Informations-Gesellschaft mbH. The supply situation in Great Britain was tighter still, with premiums amounting to as much as EUR 15 per tonne. By contrast, the small French rapeseed crop failed to secure a bonus as bids from oil mills remained below the forward rate.

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Chart of the week (48)

Rapeseed cake - a cost-effective alternative

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Decentralised oil mills provide a considerable contribution towards supplying their regions with rapeseed cake. Due to the special method used to make rapeseed cake, this GVO-free protein feed contains more fat than rapeseed meal, with fat being a major energy source in animal feed. Whereas prices for GVO-free soybean meal delivered free to yard jumped in the early summer due to tight supply and rising world market prices, rapeseed cake and rapeseed meal only saw a comparatively slight price rise. However, rapeseed meal was temporarily more expensive than rapeseed cake. As demand slowed, prices went down again. Above all, rapeseed meal fell to new lows, while oilseed cake remained at the same level. Soybean meal remained relatively expensive and most recently even surged, driven by firm forward prices and the weak euro which also made imports more expensive. The rise also pulled up asking prices for the competing meals. However, as demand for rapeseed meal continues to be slack, nearby batches that are unloaded onto the market offer opportunities from time to time. Protein in rapeseed meal is even less costly, Agrarmarkt Informations-Gesellschaft mbH reports. The two-year average price free farm for rapeseed meal protein was 30 per cent below that for 45 % soybean meal protein. Clearly, not all animal farmers are aware of the ruminant feed cost saving potential rapeseed meal offers. For this reason, UFOP believes that there is still a considerable need for information and advice.

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Chart of the week (47)

Rise in vegetable oil prices continues

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A decline in palm oil production and sharp increase in soybean processing have sent vegetable oil prices climbing. Buoyant demand and surging crude oil prices are additional factors driving the development. Vegetable oil prices went up substantially over the past six months. The price spread between soybean and palm oil has narrowed significantly since the beginning of August 2016. Prices of palm oil soared by around 24 per cent at the beginning of August, to almost the level of soybean oil. The reason was a surprising 3 per cent decline in output while demand continued to be brisk, which spawned uncertainty. At the same time, decreasing US supplies of soybean oil have driven up soybean oil prices significantly since mid October. US soybean processing reached new record levels and sent soybean prices up as a result. The development in the vegetable oil market is fuelled by the price of crude oil. As crude gets more expensive, vegetable oils gain a competitive advantage as feedstock for biodiesel, boosting demand. In other words, the firming trend in vegetable oil prices will continue on strong demand despite the record soybean crop in the US.

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