Chart of the week (42 2019)

2019 EU sunflower crop falls just short of previous year's level

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Sunflowers are the second most important oilseed crop in the EU, currently occupying one third of the total production area.

The unfavourable growing conditions in 2019 primarily affected winter crops. The productivity of summer crops, such as sunflowers, was less impaired. The drought in spring was sub-optimal for germination, but it allowed farmers to sow the seed timely. According to information published by the EU Commission, the total EU area sown with sunflowers amounts to 4.4 million hectares. This translates to a 5.5 per cent rise from 2018. The five-year mean was also exceeded by 3 per cent. The largest sunflower areas are in Romania (1.3 million hectares), Bulgaria (0.8 million hectares) and Spain (0.7 million hectares).

Most regions did not receive sufficient rain during the growing season. As a result, crop forecasts were lowered for many parts of Europe due to the heat spells in the summer. The yield forecast for the EU-28 is an average of 22.9 decitonnes per hectare. This would be 1.3 decitonnes per hectare below the previous year's yield. Agrarmarkt Informations-Gesellschaft (mbH) reports that Slovenia, Romania and Spain are projected to see the sharpest decline in yield, of 12 per cent on average. Nevertheless, Romania is expected to bring in the largest harvest. At 3.2 million tonnes, sunflower production is likely to exceed the previous year's output by 0.2 million tonnes. In contrast, Bulgarian output is seen to remain almost unchanged from the previous year at 1.9 million tonnes. Although it has the third largest sunflower area, Spain only ranks fifth of EU sunflower producers, with an output of 0.8 million tonnes due to below-average yields. The country is outranked by Hungary and France, which are forecast to produce 1.8 and 1.3 million tonnes respectively. The total EU harvest in 2019 amounts to 9.95 million tonnes, which is only down 0.2 per cent from 2018.

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Chart of the week (41 2019)

Fluctuations in feedstock prices hardly move consumer prices

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The drought-reduced rapeseed harvests in Germany in 2018 and 2019 have had little impact on consumer price levels for edible rapeseed oil.

Below-average yields regularly raise the question of whether the limited domestic feedstock supply will make processed products more expensive. For example whether prices for rapeseed oil or margarine will rise as a result of the small 2019 rapeseed harvest. For German rapeseed producers, the harvest was financially disappointing. However, this allows only limited conclusions to be drawn on the development of consumer product prices. The reason is that the shortage is absorbed by rapeseed imports, especially from eastern Europe, that were secured in good time to meet German demand. The German food industry exclusively uses GM-free rapeseed, and so do German oil mills in the production of rapeseed meal as the most important opposed GM-free source of feed protein. Some companies label their trading units as "GM-free". This declaration is already found on many dairy products and it is well established in the food retailing sector today.

According to information published by Agrarmarkt Informations-Gesellschaft (mbH), consumer prices for rapeseed oil virtually remained at the same level of EUR 0.99 per litre on German average over the past five years. By contrast, movements of wholesale prices for rapeseed oil ex oil mill were much more pronounced – but had little impact on consumer prices.

There is also only a limited correlation between producer prices for rapeseed and oil mills' asking prices for rapeseed oil. Whereas rapeseed oil has steadily increased 11 per cent since March 2019, prices for rapeseed only rose 5 per cent over the same period. The use of rapeseed oil in biodiesel fuel production also has virtually no impact on the price level of edible rapeseed oil for consumers. In other words, the controversial “food-or-fuel debate” ignores the de-facto developments in the market.

 

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Chart of the week (40 2019)

Outlook for global soybean stocks loweredl

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In its latest publication, the US Department of Agriculture (USDA) substantially lowered its estimate of the 2019/20 soybean stocks. However, stocks are still seen to be large.

In its latest forecast for international soybean supply in the 2019/20 marketing year, the USDA made some adjustments. Beginning stocks were pegged at 112.4 million tonnes, down 1.85 per cent from the previous month's estimate. Also, the output forecast was lowered marginally to 341.4 million tonnes. The biggest adjustment was made for soybean ending stocks. The estimate of 99.2 million tonnes is down 2.5 per cent from the August estimate and would translate to an 11.8 per cent drop from the previous year's record. However, it would still be the second largest tonnage ever and, according to Agrarmarkt Informations-Gesellschaft (mbH), make the start into the new processing season extremely comfortable.

The USDA also made significant adjustments to its production outlook for individual US states. However, these adjustments almost offset each other on balance. Not surprisingly, the harvest estimate for the US was slightly lowered again by 1.3 per cent to 98.87 million tonnes. This means that the harvest would fall just over 20 per cent short of the previous year's record. It would also be the poorest harvest in six years. Heavy rain and flooding delayed US soybean plantings in spring and impaired the early stages of plant development. The crops did not completely recover from this poor start during the rest of their growth phase. This is confirmed by both the weekly figures on US crop progress and condition and the monthly USDA harvest estimates.

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Chart of the week (39 2019)

Rapeseed prices clearly exceed year-ago level

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The small EU rapeseed crop and firm forward prices drove up producer prices for rapeseed considerably. Also, feedstock demand from oil mills picked up over the past weeks.

At the beginning of the 2019/20 marketing year, farm rapeseed prices climbed sharply. The rise was due to the small rapeseed harvest in Germany and the EU in 2019. At the beginning of July, prices were at EUR 354 per tonne. At the end of August, they already surpassed the mark of EUR 360 per tonne and most recently, they hit EUR 367 per tonne. In other words, rapeseed prices were up EUR 14 per tonne from the previous year and even EUR 20 per tonne from 2017.

According to Agrarmarkt Informations-Gesellschaft (mbH), although prices significantly exceeded the year-earlier level, farmers' inclination to sell did not pick up until calendar week 37. Before then, farmers held back on their produce because they found that the price level was much too low given the small crop. Only the noticeable jump in prices in calendar week 37 encouraged farmers to recommence selling their produce. The higher price level for rapeseed oil and higher margins spurred rapeseed processing in the oil mills.

Support also came from the futures exchange in Paris. Price quotes for rapeseed prices have increased 6 per cent since July.

 

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Chart of the week (38 2019)

Biodiesel prices soar

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Buoyant demand for biodiesel, especially rapeseed methyl ester, hasn’t just driven biodiesel prices, but also rapeseed oil prices.

Wholesale prices for biodiesel have seen a sharp rise since 14 August 2019, from 70.5 euro cents per litre in mid August to recently 91.6 euro cents per litre. This translates to an approximately 30 per cent increase. The current price exceeds the year-ago level by 27 per cent. The mark of 90 euro cents per litre was not cracked until November in 2018. According to Agrarmarkt Informations-Gesellschaft (mbH), the price increase is due to growing demand for biodiesel. From October onwards, rapeseed methyl ester (RME), without any additives, is the primary material blended into diesel fuel to ensure winter diesel quality. The fatty acid composition of rapeseed oil accounts for the edge rapeseed oil-based biodiesel has over biodiesel based on soybean oil and, above all, palm oil. 

As a result, demand for RME rises every year in September, driving up prices. The requirements for winter diesel apply to diesel fuel all over the northern part of the European Union. The above-mentioned property of rapeseed oil is unique. For this reason, national commitment targets indicate a minimum need for rapeseed methyl ester. Moreover, mineral oil companies, which are subject to the obligation to meet the GHG reduction quota, are required to meet such quota by the end of the year (calendar year = quota year). This is why they are stocking up on RME for the fourth quarter. In 2019, the companies started to order RME in mid August already. This was a month earlier than the previous year. 

Higher demand for RME has also pulled up wholesale prices for rapeseed oil, which recently reached 73.5 euro cents per litre. Only prices for agricultural diesel have remained at a relatively constant level of around 76 euro cents per litre since July 2019.

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Chart of the week (37 2019)

Small EU harvest drives rapeseed prices

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Whereas the small harvests in the EU and buoyant RME demand from the biodiesel industry sent rapeseed prices in Paris rising, US soybean prices were guided by mixed stimuli.

Paris rapeseed prices have been on a steady rise since the beginning of March 2019. Reaching EUR 351.50 per tonne – the lowest level since June 2018 – on 4 March 2019, they recently closed at EUR 383 per tonne. According to Agrarmarkt Informations-Gesellschaft mbH (AMI), prices were driven by the small EU rapeseed harvest. The trend was also supported by increasing prices for palm oil. Forward prices of rapeseed were also lifted by the sharp rise in demand for biodiesel. At the same time, along with UCOME, which is in demand at all times, rapeseed methyl ester (RME) has been ordered since mid August for incorporation in blends from October onwards to meet winter diesel requirements. Market participants said that, consequently, demand for RME had picked up earlier than usual.

On the other hand, Chicago soybean prices did not show a clear trend. Seldom ever have analysts' and the USDA's assessments of soybean plantings been so disparate. Due to massive delays in planting in the US, the volume of the US harvest was still uncertain. Depending on weather conditions and US crop development, prices will rise or decline. The intensifying trade war between the US and China weighs heavily on prices. China has collected an additional 5 per cent punitive tariff on soybean shipments from the US since 1 September 2019. However, the extra tariff is of a more symbolic nature. In fact, its purpose is rather to demonstrate that China has no intention to back down in the trade dispute with the US. This assumption is based on the fact that the Chinese government has already strictly prohibited domestic companies from purchasing US agricultural products, such as soybeans. This means that an agreement in the US-China trade dispute recedes further into the distance. Although soybean prices have declined EUR 18 per tonne since June 2019 to recently EUR 282 per tonne, they were still EUR 20 per tonne above the year-ago level.

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Chart of the week (36 2019)

Biodiesel exports rose sharply

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German biodiesel exports rose sharply in the first half year of 2019 compared to 2018. The Netherlands is the primary country of destination and by far the most important trading platform in Europe.

In the first half year of 2019, biodiesel exports increased significantly year-on-year by approximately 0.225 million tonnes to 1.14 million tonnes. This translates to approximately one third of Germany's annual output. The majority of exports went to other EU countries. Their share rose 30 per cent from the previous year to 1 million tonnes. With a 59 per cent increase and approximately 0.46 million tonnes, the Netherlands is by far the most important recipient and transit country for reshipments to other countries.

Great Britain saw the largest relative increase. The country purchased 43,290 tonnes of biodiesel from Germany in the first half year of 2019. This was almost triple the volume bought in 2018. Belgium also raised import volumes by more than half to 136.000 tonnes. The US, which ranked third of the top recipient countries in the quarter-on-quarter comparison until March 2019, purchased 82,000 tonnes and slipped to rank five in the half-year comparison. Nevertheless, the country raised its biodiesel imports from Germany by half compared to the same period last year. This translates to the third largest increase among the top ten importing countries of German biodiesel. According to information published by Agrarmarkt Informations-Gesellschaft (mbH), some recipient countries also saw considerable declines in imports. Above all, French imports of German biodiesel dropped around 22 per cent to 25,000 tonnes in the first half year of 2019 compared to the same period 2018. Poland and Austria lowered their import volumes 10 per cent to 118,000 and 88,000 tonnes respectively.

From the perspective of the Union zur Förderung von Oel- und Proteinpflanzen (UFOP), these figures underline the importance and competitiveness of the German oil mill and biodiesel industries. One of the reasons is that the German market easily absorbs rapeseed meal that is obtained as a by-product in rapeseed processing. Due to the geographical situation of Germany within the EU and the receptiveness of the country's livestock industry – especially in dairy feeding – biodiesel exports also safeguard rapeseed production in neighbouring EU states. Because the German rapeseed harvest was small again this year, at approximately 2.8 million tonnes, UFOP is concerned that the trade channels for rapeseed imports could become firmly established. However, the association has pointed out that producer prices must increase, if German production is to safeguard supply. UFOP has reminded oil mills and biodiesel producers that the obligation to reduce greenhouse gas emissions will increase to 6 per cent in 2020. Public and political acceptance of the biofuels policy also depends on the volume domestic rapeseed production contributes to feedstock supplies, UFOP has warned.

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