How high can rapeseed go? Grain Market Daily

Wednesday, 11 September 2019

Market Commentary

  • UK feed wheat (Nov-19) futures continued their positive move yesterday gaining £0.85/t to close at £135.00/t. Yesterday’s move saw wheat futures close above the 20-day moving average for the first time since late July. 
  • The latest rally continues to see wheat futures move against the path of sterling.
  • On Thursday the USDA will release its latest supply and demand estimates. Meanwhile a meeting of the European Central Bank is expected to result in a cut to ECB interest rates and a subsequent weakening of the euro.Both reports will be watched closely for their impact on global and EU pricing.

How high can rapeseed go?

  • Rapeseed production in the EU down 13% year-on-year.
  • Rapeseed oil prices high but competitor oil prices holding steady, potentially reducing demand.
  • Australian canola production suffering from the heat.

Oilseed rape prices, both EU futures and UK physical have seen some significant growth on the back of supply woes over the past couple of months. EU OSR production is now forecast at 17.5Mt by the EU commission, a 13% fall year on year.

While supply tightness has driven prices higher, logic dictates that prices can’t rise forever. At some point the fundamentals will all be factored in, and OSR will price at such a point that disincentives demand. But where is that point and what will drive it?

Oil prices

The main catalyst of a reduced demand for oilseed rape is likely to come from the recent surge in prices of rapeseed oil. While rapeseed oil prices have been climbing of late, prices of competitor oils have stagnated.

Sunflower oil and soyabean oil now discount to rapeseed oil by $143/t and $129/t respectively. Moreover, the price of sunflower seed (CIF, Rotterdam) has also fallen considerably away from rapeseed.

At such levels the incentive to crush sunflower seed instead of rapeseed is likely to increase, capping demand and prices for rapeseed. The EU is forecast to crush an additional 542Kt of sunflower seed and an extra 690Kt of soyabeans this season (EU Commission).

Southern Hemisphere

With the loss of potential support for oilseed rape prices from a switch into other oils, production in the Southern Hemisphere will also be watch closely for future price direction. Yesterday Grain Market Daily, Peter highlighted the current dryness challenges for Australian wheat.

Dryness in the country is equally a concern for its canola crop. Production of canola in Australia is forecast at 2.3Mt, up on the year, but 29% below the 10 year average.

The Australian crop is a key import crop for the EU and as such will be an important influencer of OSR prices.

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