Chart of the week (08 2019)

Foreign trade of biodiesel at record level

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The German Federal Statistical Office has confirmed Germany's brisk foreign trade of biodiesel. The total volume amounted to around 3 million tonnes, with imports showing a striking growth.

In the 2018 calendar year, German foreign trade of biodiesel hit new record highs, both in exports, and, first and foremost, imports. The latter exceeded the mark of 1 million tonnes for the first time, reaching 1.2 million tonnes, the German Federal Statistical Office reported. This was up just less than 55 per cent, or 430,000 tonnes, from 2017.

According to investigations conducted by Agrarmarkt Informations-Gesellschaft (AMI), the bulk of the deliveries, around 860,000 tonnes, came via the Netherlands and Belgium. In other words, the share of these countries more than doubled. However, this biodiesel did not only originate from the Benelux countries, but was sourced from third countries and then distributed in Central and Northern Europe.

Germany also sold a record amount of just over 1.8 million tonnes of biodiesel abroad. Exports were up around 16 per cent year-on-year. Traditionally, the key recipient countries are the Netherlands and Poland, where demand has remained virtually unchanged over the past three years.

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Chart of the week (07 2019)

Nothing unexpected in USDA report

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Due to the shutdown, the soybean market had to do without the USDA forecast for a month, after which it virtually craved for the new report. However, the latter provided little news.

The fact that the figures for the US soybean crop were lowered left the market with an AHA! effect. Average crop yields and, consequently, the total harvest are seen smaller than previously expected. This has led to some relief in the market, because supplies wouldn't increase as much as previously feared.

The harvest estimates for Brazil and Argentina were also adjusted downward significantly. However, this is what market participants expected, because growing conditions are less than ideal in both countries. The adjustment of the Brazilian harvest estimate by 5 million tonnes to 117 million tonnes is considered to be on the cautious side. Other forecasts have already put it much lower. The global 2018/19 soybean crop is projected to reach 361 million tonnes. This is down just over 8 million tonnes from the December forecast, but still up 6 per cent year-on-year. According to Agrarmarkt Informations-Gesellschaft (AMI), this means that soybean production has seen a 70 per cent expansion in 10 years. Despite growing demand, supplies are increasing to new record-high levels. Consequently, pressure on prices increases.

The Union zur Förderung von Oel- und Proteinpflanzen (UFOP) has expressed fears that the current lack of perspective in European and national biofuels policies will exacerbate the situation further. Relief could come from raising the cap on biofuels from cultivated biomass or progressively increasing greenhouse gas reduction obligations. UFOP has maintained that the EU Commission's current policy stands for a decreed downward pressure both on prices and income from duty-free imports of soy methyl ester from Argentina in the amount of 1.2 million tonnes. What's more, the association has pointed out, is that the EU Commission's recent proposal for an agreement on addressing iLUC runs quite contrary to the political will of the European Parliament to discontinue the use of palm oil in biofuels production by 2030.

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Chart of the week (06 2019)

Vegetable oil price index hits eleven-year low

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After one year, the downward spiral of the vegetable oil price index of the Food and Agriculture Organization of the United Nations (FAO) finally stopped in December 2018.

The FAO vegetable oil price index had been fairly weak since November 2017. It fell from 172 points then to 125 points in November 2018, the lowest level since November 2006.

The main factor putting pressure on the price index, which illustrates the changes in international prices of the ten most important vegetable oils in world trade, was the weakness of palm oil. Palm oil prices lost almost one third of their value over the above-mentioned period of twelve months. The key reason was slow demand on the global market, which is supplied by the two main palm oil producing countries, Indonesia and Malaysia. However, since there was surplus production, Indonesia tried to boost domestic use by continuously increasing biodiesel incorporation requirements. This strategy was supported by firm crude oil prices that reached a four-year high in New York in October 2018. However, crude oil subsequently fell, losing half its value in only twelve weeks.

At the same time, demand for soybean oil waned due to the trade dispute between the US and China. The resulting surplus was also reflected in weak prices. According to Agrarmarkt Informations-Gesellschaft (AMI), soybean oil prices dropped one fourth from November 2017 to November 2018. By contrast, rapeseed oil stopped the downward price trend already in April 2018 and rose 21 per cent by November. The reason was brisk demand combined with limited supply of rapeseed from the 2018 crop. However, there has been no lift in prices since then.

For the full year of 2018, the FAO index for vegetable oils averaged 144 points. This translates to a 15 per cent decline from 2017 and was the lowest level since 2007.

The Union zur Förderung von Oel- und Proteinpflanzen (UFOP) has noted that Indonesia has been trying to take pressure off the market by implementing an ambitious biofuel quota policy. The country is now the world's largest biodiesel producer with an output of approximately 6.8 million tonnes. According to information published by the Indonesian Association of Biodiesel Producers (APROBI), in 2018 approximately 4 million tonnes of palm oil methyl ester were sold via increased blending requirements (B20 throughout the country) and around 1.4 million tonnes went into exports. The country continues this quota policy by investigating B50. UFOP expects that Indonesia, a co-signatory of the Paris climate agreement, will want to have these incorporation volumes counted towards national greenhouse gas reduction obligations for the transport sector.

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Chart of the week (05 2019)

Reduced rapeseed processing

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Small rapeseed crops in Germany and the EU-28, inadequate third-country supply, unsatisfactory margins and, on top of all that, low water levels in rivers. German oil mills have processed less rapeseed in the running marketing year than a year earlier.

Already in the marketing year 2017/18, German oil mills cut back on processing because feedstock supply was low. When another small rapeseed crop was harvested in 2018, there was even less domestic rapeseed available.

The decline was not fully set off by imports, because some of the traditional rapeseed supplying countries also reaped a smaller harvest of rapeseed. In general, the share of domestic rapeseed in total consumption was 43 per cent, the same level as 2017.

From July to November 2018, German oil mills processed around 3.7 million tonnes of rapeseed. This translates to a decline of just under 200,000 tonnes year-on-year. On average, processing amounted to 741,600 tonnes per month. By comparison, previous average monthly tonnages were 785,400 in 2017 and even 814,600 in 2016.

The decline in rapeseed use was not set off by increases in other oilseeds as their processing volumes also dropped from the previous year.

Official rapeseed processing figures for December 2018 are not available yet. However, Agrarmarkt Informations-Gesellschaft mbH (AMI) expects a strong slowdown from the same month the previous year. The reason given is the low water levels in inland waterways, which on the one hand slowed the dispatch of by-products, above all rapeseed meal, and on the other hand noticeably curtailed the delivery of feedstock. Since most foreign rapeseed is delivered directly by ship, its processing could have seen a particularly sharp decline, because in December 2018, ships on the River Rhine were only allowed to be loaded to one fourth their capacity. Stocks, which stood at 250,000 tonnes at the beginning of December, likely compensated for part of the shortfall. Nevertheless, processing of rapeseed went down in December. This was noticeable in the rapeseed meal market into January.

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Chart of the week (04 2019)

Rapeseed costs less than fuel oil

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Starting Friday this week, over a period of ten days, tens of thousands of people are going to visit the International Green Week in Berlin and enjoy the treats. Visitors to the trade show appreciate the large variety of agricultural products – but are they also aware of how cheap the feedstocks, such as soft wheat or rapeseed, that are used to make these products are?

For years now, dramatically low prices have defined the level of revenues from rapeseed and soft wheat. The drought year 2018 did not do anything to change this. So anyone who is still talking about an inflationary effect of biofuel production, raises the “food or fuel” conundrum, or time and again refers to the debate about indirect changes in land use (iLUC) to argue against biofuels certified as sustainable, misjudges the situation. In fact, fuel oil has a far "higher value" than rapeseed or grain. Prices for energy and agricultural feedstock are actually diverging. In other words, agriculture acts as a brake on inflation. What is more, biofuel use remains a key market for agricultural feedstock and prevents producer prices from skidding further still. Rapeseed meal that is obtained as a by-product in biofuel production is becoming an increasingly important factor in pricing, as it is used as a GM-free protein feed for dairy cows. GM-free feeding is a requirement for the well-known “without GM” label on food packaging.

Additional demand to provide urgently needed support to rapeseed and grain prices would be helpful, but is not foreseeable at present. Farmers want to earn their incomes in the market. But there is no political debate about the precarious market situation. Neither the EU Commission nor European politics is capable of generating market prospects that could contribute to improving the price situation for producers in what is called the non-energy related bio-economy. In fact, the option was wasted as the revision of the European Renewable Energy Directive (RED II) recently took effect, the Union zur Förderung zur Förderung von Oel- und Proteinpflanzen (UFOP) has complained. UFOP is calling on politicians to take into account the sustainably available potential of cultivated biomass for use as transport fuel in the consultations on a national climate protection strategy in the transport sector. The obligation imposed on petroleum companies to reduce GHG emissions which was introduced in Germany in 2015 has basically been a successful control mechanism and has now also been recognized in the EU. It is now, for the first time, explicitly listed in the RED II as a regulatory option. The challenge now is to further develop the GHG reduction obligation after 2020.

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Chart of the week (03 2019)

EU imports of US soybeans doubled

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Following China's ban on US soybeans, the US has been in need of new buyers. The EU-28 benefits from this situation as its imports of US soybeans have multiplied.

The EU-28 has always depended on oilseed imports from third countries, because EU demand exceeds EU production by around 30 per cent. Above all, soybeans are in strong demand, as they have hardly been produced in the EU-28 to date. In the first half of the 2018/19 marketing year, the EU-28 imported 6.95 million tonnes of soybeans from third countries. This was up 12 per cent from the year-earlier period. The US remained the main supplier, with volumes jumping to 5.2 million tonnes (previous year: 2.3 million tonnes) this season. In other words, three quarters of EU soybean imports came from the US, Agrarmarkt Informations-Gesellschaft mbH (AMI) has reported.

The prime reason for the strong rise in shipments from the US is the trade war between the US and China. In response to the import tariffs the US unilaterally imposed on Chinese products, China imposed tariffs on US soybean imports. For the time being, China covers its demand of around 90 million tonnes mainly from South America. This beats down prices for US soybeans and makes them more attractive to other importers, such as the EU.

The second most important soybean supplier to the EU in the period July-December 2018 was Brazil, delivering 1.3 million tonnes, which was one fourth less year-on-year. Canada, Paraguay and the Ukraine share the other places, but with volumes significantly lower than 2017/18. Brazil could regain its position at the top of EU soybean suppliers towards the end of the marketing year, because the country's new crop will be available from January onwards. Even if the soybean harvest were to fall slightly short of the previous year's crop, there would still be enough produce left for exports.

The Union zur Förderung von Oel- und Proteinpflanzen (UFOP) has criticised the fact that price pressure on European rapeseed and grain legume production has increased in the wake of the shift in trade flows. Will this be the future of sustained bioeconomics, where sustainability requirements are rendered ineffective by trade disputes, UFOP has asked.

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Chart of the week (02 2019)

2018 drought – small harvest and low prices

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Although the German rapeseed harvest was the smallest in 15 years, this fact is not reflected in farmers' proceeds. Rapeseed producers received on average EUR 356 per tonne in the first six months of the ongoing marketing year 2018/19. This was up just 2 per cent from the year-earlier period, although the 2018/19 harvest fell 14 per cent short of the previous year's. Temporarily, producers obtained EUR 376 per tonne free storage facility in individual cases, but this kind of peak was only reported for North Germany for a very brief period of time. By contrast, farmers in South Germany sometimes sold rapeseed from the 2018 harvest at EUR 330 per tonne at the beginning of the season. Most recently, there was hardly any movement in bids, which ranged between EUR 335 per tonne in Bavaria and EUR 370 per tonne in Lower Saxony, Agrarmarkt Informations-Gesellschaft (AMI) has reported.

Total proceeds from German rapeseed harvests have varied enormously. In purely arithmetic terms, the 2009 bumper crop yielded proceeds of EUR 1.6 billion. A year later, they were up 24 per cent at approximately EUR 2.1 billion, although the harvest was down 9 per cent. Along with rapeseed supply in Germany, competing supply from abroad and the development of proceeds from rapeseed by-products and processed products (rapeseed meal and rapeseed oil) all have a strong impact on the price level of German rapeseed.

According to the Union zur Förderung von Oel- und Proteinpflanzen (UFOP), rapeseed must stand its ground against competition from soybean processed products and palm oil. In the past several months, abundant soy supply, low palm oil prices as "base prices" for energy-related uses, and the increasing supply of waste oils prevented rapeseed prices from rising. The impact of the international biodiesel market virtually fizzled out. Crude oil prices and the euro-dollar ratio also had a bearing on the price structure.

 

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Chart of the week (01 2019)

Different development of cropland in the northern and southern hemisphere

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The primary purpose of agriculture has always been to feed people. The continuous growth in population and changes in eating habits due to higher incomes call for sustained intensification and increases in agricultural production.

The production of grain and rice more than doubled between 1960 and 2014 from 1.3 billion tonnes to 2.6 billion tonnes, and the output of vegetable oils increased even twelve-fold. In the southern hemisphere, this growth is first and foremost based on an expansion of agricultural land, along with technical progress in production methods (seed, fertilizers, crop protection, agricultural engineering).

In the northern hemisphere, on the other hand, cropland is decreasing. Increases in productivity primarily result from research and innovation at universities and companies. This progress is achieved as a result of farmers' high levels of qualification, good professional support and prompt implementation of new insights in agricultural practice.
The conversion of primeval forest and other land required to protect the environment and climate is increasingly meeting with strong public and political resistance. For this reason, there is a need to create sustainability requirements that are binding on all growing areas. Based on these requirements, biomass production must be certified to allow it to be traced back to its origin.

In the southern hemisphere, the implementation of social standards and the issues of land acquisition and ownership are paramount for sustained biomass production. A stop must be put to illegal clearings of primeval forest or changes in land use to create new palm oil plantations or expand soybean cultivation. In the revision of the European Renewable Energy Directive (Red II), the EU's biofuels policy defines more stringent documentation requirements and greenhouse gas reduction requirements, for the first time also for solid biomass. At the same time, in light of the changes in land use in South America and Asia (clearing primeval forest), there are growing calls to develop these system requirements further – irrespective of final use – and lay them down in legislation. The aim should be to create a level playing field for global fair competition without any environmental or social dumping.

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Chart of the week (51)

2019/20 world rapeseed production set to be stable

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The rapeseed area for the 2019 harvest is expected to increase in many countries, whereas in the EU it is anticipated to decline substantially.   

For this reason, the International Grain Council (IGC) assumes the global area planted with rapeseed to expand minimally by less than 1 per cent.

Following an extremely difficult season in 2018/19, EU prospects of an average harvest in the coming marketing year were noticeably clouded already at the time of sowing. According to Agrarmarkt Informations-Gesellschaft mbH (AMI), the prolonged period of drought not only forestalled sowings in many places, but also gave field crops a poor start. This situation has fuelled fears of winter kill. In the EU, there are numerous signs of a significant reduction in rapeseed area. The 5.8 million hectares that have been projected for the marketing year 2019/2020 would be the poorest area basis in 12 years.

By contrast, sowings in Ukraine went well. By the beginning of November sowings were up 16 per cent from 2017. In Ukraine, winter rapeseed accounts for around 90 per cent of the area devoted to growing rapeseed, whereas summer rapeseed prevails in Russia. Russia is also expected to see an increase in rapeseed area. The current estimate is 1.6 million hectares, which translates to a 14 per cent rise from the previous year. In the south of China, sowings of winter rapeseed are reported to be just about complete. Since state funding has been discontinued, the negative trend in area is likely to continue in 2019/20.

The Union zur Förderung von Oel- und Proteinpflanzen (UFOP) has called on the EU Commission to create economically sustainable prospects for European rapeseed – the crop that is the primary GM-free source of protein and flowering plant in cereal-dominated crop rotations. In connection with the revision of the European Renewable Energy Directive (Red II), UFOP expects the Commission to send a clear political signal that the use of palm oil for biofuels will be significantly reduced in the EU in 2019 and gradually tapered down to nil. This goal should be legally anchored in the delegated act the EU Commission is required to submit by 1 February 2019. The association has also urged that the preconditions required for restricting imports should be created in the ongoing anti-subsidy proceedings against Indonesia as soon as possible.

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Chart of the week (50)

Biodiesel prices rise sharply


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It is often argued that the EU biofuels policy drives prices for agricultural feedstock, yet there is nothing to prove this. When prices for agricultural commodities and staple foods exploded globally in 2007 and 2008 and prices became volatile as a result, the focus was on issues surrounding global nutrition. Continued famine and poverty since then have primarily been associated with changes in international prices for agricultural feedstock and the promotion of biofuels. Environmental associations in particular have frequently, and very effectively, made the case that the main cause is in the EU’s biofuels policy.

However, they fail to take into account that according to the FAO, suppliers respond by intensifying production and increasing yields. For several years now, bumper crops have led to global oversupply and, as a consequence, a build-up of stocks at high levels. At the same time, the shares of biofuels in the top agricultural commodity exporting countries in Asia and North and South America reached new record highs. Governments have responded to the surpluses by raising the national biofuels mandates to stabilise producer prices. The current biodiesel hype, which has little impact on selling prices of raw rapeseed oil, shows that fuel prices have little influence on agricultural commodity prices. Demand for rapeseed methyl ester over the past few weeks caused a decline in supply, but feedstock remained abundant at all times. Consequently, rapeseed oil prices only rose slightly. At the same time, the price gap between rapeseed oil and palm oil widened to approximately EUR 300 per tonne, according to information published by Agrarmarkt Informations-Gesellschaft mbH (AMI). The key issue affecting the product chain of rapeseed processing and biodiesel production in Germany is the uncertain transport situation due to low water levels in Germany's rivers that have curtailed the flow of goods and led to rising prices.

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Chart of the week (49)

Rapeseed oil remains the most important biodiesel raw material in the EU


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The availability and price of vegetable and animal oils and fats also play a key role in biodiesel production. In the European Union, rapeseed oil continues to be the most important source of raw materials for biodiesel production.With the lower supply and the resulting increase in the price of the raw material, however, the share shrank slightly from 48% in 2016 to 44% in 2017. The growing competition of cheap raw materials from overseas combined with scarce and thus expensive rapeseed oil reduced the opportunities for domestic oilseeds. The share of biodiesel and hydrogenated vegetable oil (HVO) from Southeast Asia in EU biodiesel production (including HVO) grew to 29%. In countries such as Italy, Spain and the Netherlands, imported palm oil is the No. 1 raw material for biodiesel production, in Germany and France it is rapeseed oil. By contrast, the use of yellow grease has increased only marginally, although the policy particularly encourages its use. With the exception of Germany, biofuels from waste and residual materials will be counted twice towards national quota obligations (energetically) in order to increase the share of renewable energies in the transport sector, which is binding for all member states, to 10% by 2020.

Against the background of the revision of the Renewable Energy Directive recently confirmed by the European Parliament and the Council, the Union zur Förderung von Oel- und Proteinpflanzen (UFOP) is calling for the mandatory phasing out of the use of palm oil as a raw material to be determined in the delegated act to be submitted by the EU Commission by 1 February 2019. The association emphatically recalls this compromise reached with the European Parliament within the framework of the trialogue procedure. In its April 2017 resolution, the European Parliament adopted the ban, which was not enforceable in the trialogue. The UFOP stresses the strategic importance of the biofuel market for European rape seed cultivation, in particular for sustainable crop rotation systems. Some 6 million tonnes of sustainably certified biodiesel made from rape seed oi not only make a noticeable contribution to climate protection in transport. The resulting GMO-free rapeseed meal of approx. 9 million tonnes reduces the import of GMO soy to the same extent and the land requirement otherwise required for this. These compensation effects are insufficiently recognised in the iLUC debate and on the question of the definition of raw materials with a high "iLUC risk", the UFOP criticises.

 

 

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Chart of the week (48)

Rapeseed market goes calmly into winter


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The feed market is one of the main beneficiaries of biodiesel production, because rapeseed meal is generated as a by-product of rapeseed oil production. Throughout Europe, rapeseed meal is the primary domestic GM-free source of protein for livestock feeding, concludes the Union zur Förderung von Oel- und Proteinpflanzen(UFOP).

Rapeseed prices have moved up slightly in very small steps since rising sharply in the summer due to the smaller rapeseed harvest. Consequently, the gap over soybean prices, which were in decline, widened, although rapeseed failed to reach previous years' levels. The recently reported price of EUR 359 per tonne matched the year-ago level. Consequently, rapeseed was down EUR 26 per tonne from two years ago, when the German rapeseed harvest was considerably larger. The current changes in prices and comparatively low stocks motivate farmers not to sell their rapeseed for the time being. According to information published by Agrarmarkt Informations-Gesellschaft (AMI), sales opportunities are expected to improve for the second quarter of 2019 when supply of oil mills will still be very patchy. Nevertheless, rapeseed producers and agricultural traders will not be in a rush to sell the commodity during that marketing period, because even now there are many speculations on price increases in the transition to the 2019 crop. The small EU rapeseed crop in 2018, the foreseeable low export potential of Australia – traditionally the EU's most important supplier –, and not least the difficult winter rapeseed sowings in Germany and France all fuel hopes that rapeseed supply will be scarce and prices will rise as a result. The rapeseed market is therefore not expected to pick up at the beginning of the new year, because price expectations of oil millers and farmers are likely to be still too disparate then.

 

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Chart of the week (47)

Significantly less GM-free rapeseed meal without biodiesel production

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The feed market is one of the main beneficiaries of biodiesel production, because rapeseed meal is generated as a by-product of rapeseed oil production. Throughout Europe, rapeseed meal is the primary domestic GM-free source of protein for livestock feeding, concludes the Union zur Förderung von Oel- und Proteinpflanzen (UFOP).German rapeseed processing in 2017 amounted to 9.2 million tonnes, yielding just less than 4 million tonnes of rapeseed oil and 5.2 million tonnes of rapeseed meal. Since rapeseed is produced in Europe and many other countries throughout the world without using genetic manipulation (GM), its by-product, rapeseed meal, is also classified as GMO-free. This classification promotes the use of rapeseed meal mainly in dairy feeding, where it can fully replace soybean meal. The key factor is that demand for dairy products that bear the attribute of “without GM” are in strong demand.

What is more, rapeseed meal also reduces the dependence on imports of GMO soy or GMO soybean meal. Only about 33 per cent of the 4 million tonnes of rapeseed oil were used for human or animal consumption and 66 per cent for technical applications or energy production. If demand for rapeseed oil for use in biodiesel production were to shrink in the future, which would be the case if biodiesel is no longer seen as a contribution towards decarbonising the transport sector, more than 60 percent of today’s rapeseed meal production would no longer be available. As a result, this gap would have to be filled with soybean imports. In purely arithmetic terms, the rapeseed meal gap in the past year would have amounted to 3.5 million tonnes. To offset the shortage, Germany would need to import an extra 2.7 million tonnes of soybean meal annually, which translates to 1 million hectares planted with soybeans. Consequently, the situation would reverse the trend of promoting domestic GM-free protein sources. It has only been since 2012 that rapeseed meal accounts for half of the meal fed to animals in Germany. An aspect that is not given enough attention in the current debate on what is called indirect changes in land use (iLUC), UFOP argues. Taking this substitution effect into account in greenhouse gas assessments would improve the competitive edge of domestic rapeseed in terms of GHG efficiency. UFOP has recommended applying this approach to safeguard the significance the cultivation of rapeseed has in cereal-dominated crop rotation systems, very especially in view of the agricultural strategy announced by the German Ministry of Agriculture. According to UFOP, domestic rapeseed production would consequently contribute to minimising greenhouse gases both in the field and in the tank.

 

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Chart of the week (46)

Good soybean supply – rapeseed slightly scarcer

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The stock-to-use ratios for soybean and sunflower seed have improved due to larger crops globally; rapeseed has gone down slightly. The ratio of supplies to consumption (also called the stock-to-use ratio) is a key figure in estimating supply and, consequently, potential price trends. The stock-to-use ratio for rapeseed and sunflower seed has been in decline for years now. The picture is somewhat different for soybeans. Bumper crops are causing supply and stocks to rise strongly. However, there is also a steady growth in demand for soy protein for animal feed, especially in China. Due to the positive development of the economy and income in the world's most populous country, purchasing power is increasing and so is demand for meat and, consequently, oilseed meals to feed the growing numbers of livestock. China's growth in demand for soy coincides with bumper crops in the US and Brazil in 2018/19. This correlation generates dynamic changes in price. However, the dynamics are weakened given the good supply to the market. The Union for the Promotion of Oil and Protein Plants (UFOP) has found that not even the debate about the shift of soybean imports from South America in the wake of the trade conflict between China and the US has led to a lasting upward trend in prices. This again confirms just how sound supply to the market is. It also highlights the flexibility of European oil mills that switch from rapeseed to soybean processing. In this sense, the feedstocks are interchangeable at will, with the exception of those with the unique selling point of “without GM”. Although this situation ensures that feedstock is utilised locally, consumers need to drive local use by purchasing locally, UFOP has underlined. In the important fuel sector, the question is if biodiesel producers are aware of the responsibility they have, UFOP has warned in view of the ongoing debate between the EU Commission and EU member states on banning palm oil in European biodiesel production.

 

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Chart of the week (45)

Unexpectedly good sunflower harvest

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Sunflower seed is the second most important oilseed crop in Europe, accounting for one third of the 2018 cultivation area.Sunflowers were affected less severely by unfavourable growing conditions that hit winter-planted crops and rapeseed extremely hard this year. Conditions at the time of sowing in spring were good and around 4.2 million hectares across the EU were devoted to sunflowers for the 2018 harvest. This was only a very slight decline from the previous year. What is more, the hot and dry summer did not harm the sunflowers by any means. Agrarmarkt Informations-Gesellschaft mbH (AMI) has indicated that the crop also benefited from the absence of quality-impairing rain towards the end of the season. In fact, sunflower seed is one of the few field crop species where harvest came in better than forecast. The latest yield estimate of 23.9 decitonnes per hectare clearly exceeded the 22.4 decitonnes per hectare expected in June and fell only 6 per cent short of the year-ago yield. Consequently, in a comparison over several years, 2018 yields were even higher than average. The key sunflower-producing countries include Romania, Bulgaria and Hungary as well as Spain, France and Italy. In Germany, sunflower production only plays a very small role. Since East European yields were in fact generally higher than those in Western Europe, the total of sunflower seed harvested in the EU in 2018 amounted to roughly 9.6 million tonnes. This was down 8 per cent from 2017 but exceeded the long-time average by 6 per cent. Due to the lack of roughage in Germany, demand for high-fibre feed components is stronger than ever. This especially applies to sunflower meal. Whereas nearby meal is sold out, sunflower meal for delivery from December onwards is up 60 per cent year on year at EUR 205 per tonne.

 

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Chart of the week (44)

Rapeseed oil prices shooting upwards

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Wholesale prices for rapeseed oil and palm oil have been moving in opposite directions for 7 months. The price difference between rapeseed oil fob Germany and palm oil cif Rotterdam rose from 87 EUR/t to more than 300 EUR/t between April and the end of October. Agrarmarkt Informations-Gesellschaft mbH (AMI) last noted such an unusually large gap in December 2012. The main reason for this uneven price development lies in differing supply-side trends: rapeseed oil is in demand and is scarce due to low harvest levels; palm oil supply, on the other hand, is plentiful.

Blenders continue to show unabated interest in purchasing rapeseed methyl ester biodiesel due to its better winter properties. Even if demand is likely to calm down by the end of the year, there will still be a shortfall to be filled, which will provide market impetus. Smaller rapeseed harvest yields are just one of the factors that have caused prices to rise. Water levels on the waterways have also been low for weeks, pushing up freight costs for seed delivery, as well as for transport of products, especially rapeseed meal.

In contrast, demand for palm oil has gradually weakened and hit a three-year low at the end of October. This was triggered by rising inventories in producer countries as a result of scant exports. Production was at times lower than during the same period last year. In addition, production rises seasonally in the second half of the year, with volumes likely to even be significantly higher than last year. Companies in the food and chemical industries that process palm oil will benefit from this downward price trend.

The Union for the Promotion of Oil and Protein Plants (UFOP) notes that market price differentiation between palm oil certified as sustainable and non-certified palm oil has not yet become established in market price quotations. The industry platform “Sustainable Palm Oil Forum” (FONAP), supported by the Federal Ministry of Agriculture, recently rightly complained about sluggish development in particular concerning sustainable palm oil for material use, still with a 27% share of this market, despite an oversupply of certified palm oil. The UFOP raises the question of whether sustainable palm oil production is even possible at 464 EUR/t, particularly if social criteria are factored in.

 

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Chart of the week (43)

Agricultural diesel – the most expensive option

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Wholesale prices for agricultural diesel, biodiesel and rapeseed oil surged considerably over the past several months. However, none of these transport fuels shot up as sharply as agricultural diesel did.

October crude oil prices reached a four-year high, causing prices of agricultural diesel – the tax-privileged option for agricultural equipment – to rise to 87.50 euro cents per litre. In March 2018, agricultural diesel and biodiesel stood at the same level, whereas rapeseed oil fuel has been cheaper than agricultural diesel since the end of 2017. Price curves are similar, but price gaps have widened significantly in some cases. This means that it pays off to process rapeseed oil into biodiesel. What is more, the latter sells fast for blend uses, not least because it is needed to meet quality requirements for winter diesel. The unexpectedly brisk demand for fuel has also driven up prices for biodiesel, along with mineral oil prices. According to information published by Agrarmarkt Informations-Gesellschaft mbH (AMI), biodiesel prices are currently up 22 per cent from spring 2018. However, low water, smaller harvests in 2018 and reductions in sowings for 2019 are also factors that add to the price of rapeseed.

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Disappointing pulse crop due to dry weather

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The reduction in area planted in spring already paved the way for a smaller grain legume crop in Germany in 2018. Moreover, pulse yields shrank massively due to the long period of drought, as did other crop yields.

Overall, an estimated 436,400 tonnes of pulses were harvested in 2018. This translates to a 28 per cent drop from a year earlier. All across Germany, average yields fell significantly short of the previous year. The smallest decline, of 20 per cent, was seen in feed peas. Sweet lupins were affected hardest, with yields crashing just less than 50 per cent. Together with the 20 per cent reduction in hectarage, the large crop losses produced a 58 per cent slump from 2017 to 22,300 tonnes of sweet lupins. Feed peas also fell significantly short of the previous year's figure. Based on a 17 per cent decline in area planted and a 20 per cent drop in yields, the volume of feed peas harvested of 197,900 tonnes was down one third from a year earlier. The field bean harvest of 154,300 tonnes was also 18 per cent lower than the previous year. The massive drop in yield of almost one third was partly offset by a 20 per cent expansion of area planted. Soybeans compare favourably, because the 25 per cent increase in hectarage almost offset the decline in yield. As a result, the harvest of just less than 62,000 tonnes was down only 6 per cent from 2017. Agrarmarkt Informations-Gesellschaft mbH (AMI) has indicated that the main reason for the poor yields was the long period of drought in many parts of northern and eastern Germany and the high share of plantings on marginal sites. More specifically, in Saxony-Anhalt yields of sweet lupins slumped 67 per cent from 2017, according to information published by the German Federal Statistical Office.

According to the Union zur Förderung von Oel- und Proteinpflanzen e.V. (UFOP), the reduction in grain legume hectarage is due to the ban on using crop protection products on greening land. While the decision was negative in terms of agricultural policy, its effects were attenuated by the weather in the autumn of 2017, which made it impossible for farmers to till winter-planted crops. This made land available for growing grain legumes.

 

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Global vegetable oil production set to reach new peak

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The US ministry of agriculture USDA has projected a record high vegetable oil production of 204 million tonnes worldwide for 2018/19. Supply of palm and soybean oil could see a particularly sharp increase. According to the USDA forecast, 2018/19 world vegetable oil production will probably rise more than 3 per cent from the previous year to a record level of just less than 204 million tonnes. Palm, soybean, rapeseed and sunflower oil account for around 87 per cent of that figure. Soybean oil is expected to see the biggest growth at 5 per cent. The development benefits from ample availability of feedstock from the 2018 bumper harvests of soybeans in Brazil and the US and continued buoyant international demand for processed soybean products. Favourable growing conditions in Southeast Asia and surprisingly high yields on palm oil plantations are seen to lead to a 4.5 per cent rise from 2017/18 to 72.8 million tonnes. Production of sunflower oil is expected to rise 4 per cent, because Ukrainian sunflower production is up around 6 per cent from a year earlier. By contrast, 2018/19 output of rapeseed oil of 28.1 million tonnes is projected 1 per cent lower than in the 2017/18 marketing year. According to Agrarmarkt Informations-Gesellschaft mbH (AMI), the reason is drought-induced disappointing rapeseed harvests in the EU-28 and Australia in 2018.

 The Union zur Förderung von Oel- und Proteinpflanzen (UFOP) has forecast that in the wake of this trend in supply, pressure on prices will persist in the international vegetable oil markets. Prices of vegetable oils have long since decoupled from crude oil prices, forcing vegetable oil producing countries to adopt more active biofuel policies. Countries like Indonesia, Brazil and Argentina have tried to handle the price pressure by raising biofuel mandates, arguing that as palm oil prices are on a declining trend while crude oil prices are rising at the same time, biofuel mandates are becoming economically more attractive.

 

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German biodiesel exports hit record high

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In the first half year of 2018, German biodiesel exports climbed considerably. Demand from the US, but also from Sweden and Austria, increased sharply. In the first six months of 2018, German exports of biodiesel surged more than 14 per cent to 877,000 tonnes compared to the year-earlier period. Just less than 88 per cent of this tonnage was marketed within the EU-28. This was up 7.5 from the year-earlier period. The Netherlands remained the primary recipient country of German biodiesel despite a 10 per cent decline in imports to 288,800 tonnes. By contrast, Poland's orders for biodiesel of 121,800 tonnes were up around one fourth from the first half year of 2017. Quadrupling its imports, Austria outpaced Belgium and moved into third place, although Belgium more than doubled its biodiesel imports. However, the US recorded the biggest growth in imports, absorbing 54,670 tonnes. In same period in 2017, US imports were extremely low at 67 tonnes. According to Agrarmarkt Informations-Gesellschaft (mbH), Sweden and Switzerland also imported considerably more German biodiesel than in the reference period. By contrast, biodiesel shipments to France, the Czech Republic and very especially Denmark declined. Demand from Denmark crashed 72 per cent to around 17,600 tonnes.

The Union zur Förderung von Oel- und Proteinpflanzen (UFOP) has underlined the competitive advantage the German oil mill and biodiesel industries have over the rest of Europe and the important contribution they are making towards safeguarding German and European rapeseed production. The association said that although the actual share of rapeseed oil-based biodiesel in the entire biodiesel market was unknown, it could be indirectly deducted from the utilization of rapeseed processing capacities. Neverthelesss, UFOP has expressed fears that oil mill changeovers from rapeseed to soybean processing cannot be ruled out, depending on feedstock costs and where technically possible. The reasons are large global supply and market distortions following the tariff conflict between the US and China. UFOP has pointed out that the GMO soybean oil that would accumulate would have to be utilized for engineering or energy-related uses, unless it would be possible to sell the oil outside the EU‑28 for food purposes.

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Soybean ending stocks increasing strongly

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World soybean production in the 2018/19 marketing year will likely be higher than previously expected. Since Chinese demand is shrinking, stocks could surge to a record high. In its September report, the USDA raised its estimate of global soybean production for 2018/19 by 2.2 million tonnes to 369.3 million tonnes. This would be up 32.5 million tonnes from the previous marketing year. With a forecast bumper crop of 127.7 million tonnes, the US is seen to be the largest soybean producer. According to the USDA outlook, 2018/19 global consumption is likely to exceed the previous year's level by 16 million tonnes. Nevertheless, the volume of soybeans processed of 353 million tonnes would still be 16 million tonnes smaller than the tonnage harvested. According to an Agrarmarkt Informations-Gesellschaft (AMI) estimate, global ending stocks will likely exceed the previous year's figure substantially at the end of the marketing year. Based on the current forecast of 108 million tonnes, the increase would amount to around 13 million tonnes compared to 2017/18, resulting in the largest ending stocks in history. Just in June 2018, ending stocks were only forecast at 87 million tonnes. China will still be the world's most important soybean importer in 2018/19. At 94 million tonnes, imports are projected at the previous year's level. The stagnation in soybean imports is due to the trade dispute with the US. Just a few months ago, USDA projected Chinese soy imports at more than 103 million tonnes.

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German rapeseed oil export shrinks

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German exports of rapeseed oil in the 2017/18 marketing year fell short of the previous year's record level. Above all, some EU member states purchased considerably less rapeseed oil. According to figures published by the German Federal Statistical Office, German exports of rapeseed oil declined for the first time in three years in 2017/18. At around 1 million tonnes, sales to foreign countries were down almost 16 per cent from 2016/17. Agrarmarkt Informations-Gesellschaft mbH has suggested that the decline is probably due to the scarcity of feedstock and high level of competition from other vegetable oils. Just about 96 per cent of exports went to other EU countries, which translates to an approximately 12 per cent decrease year-on-year. The Netherlands, the hub of international trade, were the main buyer of German rapeseed oil, with imports amounting to around 570,400 tonnes. This was down 4 per cent from a year earlier. Polish imports dwindled just less than 37 per cent to 132,000 tonnes. Belgium occupied third place among the main recipients, seeing a 23 per cent drop to 69,900 tonnes. Demand from EFTA states (Iceland, Norway and Switzerland) for German rapeseed oil slumped 66 per cent from the previous year to 26,900 tonnes. By contrast, Kenya ramped up its imports 200-fold to 1,800 tonnes and is now among the top 20 recipient countries of German rapeseed oil. The Union zur Förderung von Oel- und Proteinpflanzen (UFOP) has expressed fears that in the wake of the decline in sales, pressure on producer prices will persist despite the drop in rapeseed harvest all across the EU. The main reason is seen in surplus supply of rapeseed oil based on the slowdown in demand from the biofuels industry. UFOP has called for urgent action to develop additional sales options, for example by raising the GHG reduction quota by no later than the beginning of 2019 or by tapping into new non-EU markets as part of export promotion programmes.

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Biodiesel share increased despite declining diesel consumption

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Consumption of road traffic diesel and petrol in the first half year of 2018 was lower than in the 2017 reference period. However, the use of biodiesel and bioethanol saw a significant rise. The strongest demand for biodiesel in the past six months and the largest quantity since August 2017 was recorded in May 2018 at just about 205,000 tonnes. In the preceding months, consumption had already been considerably higher compared to the year-earlier period. Domestic consumption of biodiesel in the period from January through June 2018 increased to just less than 1.2 million tonnes. This was up 11 per cent from the first half year of 2017. Since at the same time, consumption of diesel declined 5.2 per cent from the previous year to 17.05 million tonnes, the incorporation rate rose significantly. Whereas in 2017, it amounted to around 5.7 per cent, Agrarmarkt Informations-Gesellschaft mbH (AMI) calculated it at 6.4 per cent for 2018 to date. According to information published by the Federal Office for Economic Affairs and Export Control (BAFA), the incorporation rate of bioethanol also saw a rise to around 6.7 per cent in the first half year of 2018, consequently outstripping the previous year's figure of 6.1 per cent for the same period. The surge in the incorporation rates of bioethanol and biodiesel could be due to the availability of less costly feedstocks for the production of these two biofuels. In the first few months of 2018, asking prices for palm and rapeseed oil fell to the lowest level for several years. However, maize prices in Paris also dropped significantly below the year-earlier level in the first quarter of 2018.

 

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