Chart of the week (29)

Rapeseed price exceeds that of wheat

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The price gap between rapeseed and wheat has widened at the end of 2015/16. As harvest pressure wanes, this trend could continue in 2016/17 because, due to poor weather, the EU harvest will be considerably smaller. The European grain and oilseed traders' association Coceral/Copa-Cocega estimates the 2016/17 EU rapeseed supply at 21.2 million tonnes, expecting it to be even tighter than the previous marketing year. The reason is weather-related declines in yield. Although wheat was also affected by the unfavourable weather, especially in May and June 2016, prospects for supply are significantly better as global production is expected to hit a record. Meanwhile, there is scope for upward price movements of rapeseed based on decreasing production both in the EU and worldwide. In other words, the reduced supply to the market will be reflected in prices this year too. Buyers paid around EUR 334 ex farm per tonne of rapeseed already in July 2016. This was just less than EUR 200 per tonne more than what they paid for wheat.

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Chart of the week (28)

Rapeseed stocks continue to slide in 2016/17

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Global demand for rapeseed is likely to exceed supply in 2016/17, as it did in 2015/16. Consequently, supplies could continue their slide, opening room for price increases in the long term. USDA currently estimates the 2016/17 global rapeseed production at 66.5 million tonnes, down just under 1.7 million tonnes from the previous year. Harvests in the top producing countries – Canada, China and the European Union – are expected to drop. China is projected to see the largest reduction in output, by around 7 per cent, to 13.3 million tonnes. At the same time, the USDA forecast puts the amount of rapeseed used in processing at 64.8 million tonnes. This figure is down from the previous year, but continues to be large. As at the end of the marketing year, global ending stocks could amount to around 3.7 million tonnes. This would translate to a 13-year low.

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Chart of the week (27)

Soybean meal prices shot up

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Spiking soybean prices have very recently also pulled up soybean meal prices in Germany. Wet conditions delaying harvest operations in Argentina and affecting soybean quality sent forward prices rocketing to a ten-month high. In April 2016, the previous downward slide of soybean meal prices ended abruptly. Prices delivered free to yard were up 14 per cent already in May 2016 and even saw a 17 per cent rise in June. At the same time, GMO and non-GMO soybean meal went up to virtually the same extent. The price spread between the two feed components recently amounted to EUR 89 per tonne. This is little more than the EUR 85 per tonne seen in the previous 2016 period. Consequently, the premium actually declined steadily compared to the previous years. In 2015, buyers had to pay on average EUR 99 per tonne more for GMO-free soybean meal and in 2013, it was in fact EUR 115 per tonne more. Until now, especially dairies in southern Germany have been known for focussing on milk produced without GMO feed or even without soybean meal. Now it is reported that some dairies from Schleswig-Holstein are planning to stop accepting the use of soybean meal feed as of October 2016.

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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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