Chart of the week (04 2020)

Record high soybean harvest expected in Brazil


Anticipating a record harvest in 2019/20, Brazil is set to take the lead among soybean producers, ahead of the US. By contrast, the US have harvested the smallest crop in six years.

Global soybean supply in the 2019/20 marketing year is expected to decline 6 per cent compared to the previous three years, to 338 million tonnes. The US soybean harvest is already finished, amounting to around 96.8 million tonnes, which is down 24 million tonnes from the previous year. The reason is excessively wet conditions from sowing time to harvesting. This is why Brazil, with an expected bumper crop of 123 million tonnes, is seen to retake the lead among soybean producers. According to Agrarmarkt Informations-Gesellschaft (mbH) (AMI), both expansions in area and increases in yield are likely factors contributing to the growth in soy output. The Brazilian area dedicated to the production of cereals and oilseeds was expanded 967,200 hectares to 61.6 million hectares compared to the previous year, with the soybean area alone accounting for 923,900 hectares. In other words, the total soy production area increased to 36.8 million hectares. By contrast, soybean production in Argentina, the world's third largest soybean producer, will presumably decline 2.3 million tonnes to 53 million tonnes. Drought lead to a reduction in area planted. However, AMI expects the harvest estimates for South America to be adjusted, because harvesting will not commence until the beginning of March. The US, Brazil and Argentina account for around 81 per cent of global soybean production.

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Chart of the week (03 2020)

Vegetable oil price index hits two-year high


Firm vegetable oil prices caused the vegetable oil price index of the Food and Agriculture Organization of the United Nations (FAO) to rise considerably at the end of 2019.

The FAO vegetable oil price index has increased steadily since June 2019. From 126 points at the time, it climbed just less than 40 points to 165 points by the end of the year. Between November and December alone, the index went up 9.4 per cent, or 14 points. This was the second largest rise in 2019. The surge was mainly driven by firm palm oil prices. However, asking prices for soybean, sunflower and rapeseed oil also picked up significantly. The reason for the sharp increase in palm oil prices was buoyant demand, especially from the biodiesel sector, combined with shrinking supply. Prices of soybean, sunflower and rapeseed oil benefited from smaller processing volumes at the end of 2019. Lower processing levels at the oil mills also led to a lower output of by-products, which took pressure off the market and supported prices. Moreover, world demand for soybean, sunflower, and rapeseed oil was brisk.

Concerns over global supply shortages lent additional support to prices. Regardless of the sharp rise in vegetable oil prices since November, the FAO vegetable oil price index for the 2019 calendar year averaged 135.2 points. This was down 8.9 points from 2018 and also the lowest annual average since 2006.

The development of rapeseed producer prices is mainly determined by the price level of the oil component. Despite the recent gratifying increase in producer prices to around EUR 390 per tonne, from the producers' standpoint, prices continue to remain at an excessively high level, the Union zur Förderung von Oel- und Proteinpflanzen (UFOP) e.V. has commented.

According to the association, the international vegetable oil markets are mainly supported by government regulations in South America and, above all, Asia, to increase the incorporation rates of biodiesel. Rapeseed oil has also benefited from these regulations. UFOP has complained that, on the other hand, the biofuels policy of the European Union, more specifically the implementation of the Renewable Energy Directive, further restricts the use of locally produced feedstocks or biofuels instead of promoting biofuels that are greenhouse gas-efficient and certified as sustainable.

The association expects the EU to scrutinise this subsidies policy in the context of the Green Deal the EU Commission has announced. According to UFOP, other market support measures under a national or European bioeconomy strategy are not in sight. UGOP has urged that mere announcements are not enough and there is a need for creating marketing alternatives that have a positive impact on market and producer prices.


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Chart of the week (02 2020)

Biofuels require little arable land


Although the share of land used for biofuel production increased by 1 percentage point in 2018, it remains very low.

Crop plants are grown on more than 1.56 billion hectares worldwide. These include – among others – grain, oilseeds, protein, sugar and fibre plants, fruits, vegetables, nuts and others. Most of this produce is used as food. Only around 5 per cent go into biofuels production.

At the same time, biofuels production is in most cases very obviously located in places where there is a surplus of feedstock anyway. If the surplus were not used to produce biofuels, it would have to be placed on the global market, where it would weigh heavily on already low feedstock prices. The use in biofuel production reduces the production overhang, generates extra value added and reduces the need for foreign currency for imports of crude or fossil fuels. The latter is primarily a problem in poorer countries. Another advantage is the amount of high-quality protein feed that is generated in biofuel production, demand for which is steadily increasing. The amount and quality of these protein feeds have a strong influence on feedstock prices. Consequently, they also determine the amount of land dedicated to growing the feedstocks. In other words, biofuels are by no means the price drivers in the commodities markets. If necessary, the feedstocks grown for biofuel production are primarily available for food supply. In the case of politically subsidized extensification, this option for "buffering" food demand is omitted.


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Chart of the week (01 2020)

Scarce supply of rapeseed drives rapeseed meal prices


Prospects of a tight rapeseed supply to the market both in the current and upcoming marketing year led to a sharp rise in prices in the run-up to Christmas – not only in the case of the oilseeds, but also of by-products.

Oilseed meal prices had surged sharply since November. The reason was reduced rapeseed crushing activity at the oil mills and the resulting shortage in rapeseed meal. This scarcity drove prices, especially because demand perked up for just a short time before Christmas. In addition, rapeseed meal prices on the German cash market received support from futures prices in Paris. Above all, the forecast of tight rapeseed supply to the market sent prices rocketing.

This trend was also reflected in selling prices for rapeseed meal. According to Agrarmarkt Informations-Gesellschaft mbH (AMI), mid-December selling prices ex German oil mill amounted to EUR 212 per tonne, up EUR 24 per tonne from mid November. This translates to the equivalent of EUR 6.06 per protein percentage per tonne of rapeseed meal in December compared to EUR 5.37 a month earlier. In other words, rapeseed meal lost some of its competitive advantage against soybean meal compared to the previous half year. Nevertheless, the price difference of EUR 2.56 per percentage per tonne remained above average. A year earlier, the price curves for protein were only EUR 1.50 apart.

The Union zur Förderung von Oel- und Proteinpflanzen (UFOP) expects supply to be similarly tight in the coming year unless the pre-contract prices offered at the time of sowing incentivise rapeseed growers to expand their rapeseed areas. The association has explained that oil mills are caught in the dilemma that the moderation of prices will lead to a shortage in the foreseeable future and result in the necessity to import rapeseed for a better utilisation of processing capacities.


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Chart of the week (52 2019)

Global rapeseed area stable


Whereas the rapeseed areas in the EU-28, Russia and China are expected to see a slight rise in the coming marketing year, the production area will presumably remain constant in Canada and likely decline somewhat in Ukraine.

According to the latest information published by the International Grain Council (IGC), the global rapeseed area in 2020/21 will probably be up 3 per cent from the current marketing year to 35.5. million hectares. In the EU-28, Russia and China, the area is expected to increase. More specifically, the EU area planted with rapeseed could rise 7.4 per cent to 5.9 million hectares following the sharp decline in 2019/20, although, according to Agrarmarkt Informations-Gesellschaft mbH (AMI), the sowing campaign was impaired by unfavourable weather in the north and east of the EU. In Russia, the IGC expects the area to expand 6.3 per cent to 1.7 million hectares due to the global growth in demand. The rapeseed area in China is seen to increase 1.2 per cent to 6.8 million hectares.

By contrast, the Canadian production area is anticipated to remain unchanged at 8.5 million hectares. Canadian farmers decided not to expand the rapeseed area due to the uncertainty of demand – especially from China – for Canadian rapeseed exports. Chinese rapeseed imports virtually came to a standstill in 2019 because of political disagreements. At the same time, large stocks and smaller exports to the EU are putting a damper on market expectations. European oil mills preferably draw on rapeseed from Eastern Europe, because it is GM-free, ensuring that the rapeseed meal produced can be marketed easily.

Nevertheless, the IGC expects the Ukrainian rapeseed hectarage to decline 7.1 per cent to 1.2 million hectares. About 1.1 million hectares have been sown to date, with the remaining land likely to be sown in spring. However, due to the continued drought, the Ukrainian crops in the fields are in a less than ideal condition. Consequently, it remains to be seen whether farmers will confirm the ICG's expectation as regards sowings in spring.

From the perspective of the Union zur Förderung von Oel- und Proteinpflanzen (UFOP), the trend in EU rapeseed area is alarming as regards domestic market supply, because the production area is in decline – with one of the reasons being drought-induced low per-hectare yields. The organisation argues that there is an obvious lack of stimuli from processors, with no adequate price bids ahead of the sowings to push rapeseed production. After sowings are complete, processors complain about the need for imports to offset the shortage, UFOP has observed, challenging the oil mills' strategy to secure feedstock.

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Chart of the week (51 2019)

EU remains largest biodiesel producer



In the EU, biodiesel production has increased for another year, accounting for more than one third of world production.

The single most important biodiesel producer is the European Union, which accounted for 34 per cent of global output of 41 million tonnes in 2018. The term “biodiesel” is used in the statistics to refer to biodiesel (FAME = fatty acid methyl ester), hydrogenated vegetable oil (HVO) and biofuels made from vegetable oils in petroleum refineries. Whereas in Europe biodiesel is mainly based on rapeseed oil, soybean oil is the primary source on the American continent. Soybean oil is a by-product of soybean meal production. It is used in biodiesel production in the wake of the steady expansion of soybean area and soy processing to cover demand for soybean meal for animal feeding. The most important biodiesel producers are the EU-28, the US, Brazil and Argentina. The Southeast Asian region has gained more and more importance in the biodiesel market. In the key palm oil producing countries, Indonesia and Malaysia, biodiesel production is on a steady increase, driven by increasing glut and the associated pressure on prices in the vegetable oil markets. Contrary to the EU, these countries are raising their domestic blending quota requirements (Indonesia: B20 / B30) to stabilise producer prices and to reduce foreign exchange expenses on oil imports. For the second time, global output of vegetable oils exceeds the level of 200 million tonnes in the 2019/2020 marketing year.

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