Oilseeds market outlook
The AHDB Early Bird Survey points to yet another year of area reduction for OSR, back 18% on last season’s challenged crop. The ongoing pest pressures (particularly Cabbage Stem Flea Beetle) and two weather impacted years in succession has led many growers to turn their backs on OSR, looking for alternatives that are more profitable.
So what might the reduced area mean for production this year? Applying the five-year average yield range, we might expect between 0.85Mt-1.2Mt. An average yield of 3.3t/ha would post domestic production at just over 1Mt. Ultimately whatever yields are achieved, the UK will still be a net importer of OSR.
As a proxy, the import/export balance historically swung around the 2Mt level when UK rapeseed production ranged from 1.8Mt-2.4Mt. If the UK produced less than this, then it became necessary to import, the reverse being true in production years of 2Mt+. To try to offset some reduction in rapeseed production in recent years, demand has moved more to soyabean imports to plug some of the gap.
As at the end of November, the UK’s OSR crop looked in much better condition than November 2019. Those rated “good/excellent” sat at 77% versus just 30% last year. The majority (75%) of this year’s crop was planted in August, with reportedly the later planted September crop suffering more with pest damage.
Therefore, we know that the crop went into the winter in a much better shape. However, there are still several months of key crop progression and development before harvest for any outcomes to yet be determined.
While the current supply tightness and future national outlooks have lent support to domestic prices, so has the movement of the whole oilseed complex. The continued driver of Chinese soyabean demand has consistently supported the oilseed complex all season. Coupled with this, dryness in South America has led to Brazilian production worries, although a record crop is still forecast.
Palm oil futures have generally been supported too this season, with the coronavirus pandemic resulting in labour shortages, and therefore production decreases. With these factors still key watch points for market pricing, the importance of global activity will continue to weigh heavily on the UK rapeseed price.
Since 2019, the UK has been a net importer of rapeseed. The EU has historically met most of this domestic demand. However, last year we saw the rate of Ukrainian imports into the UK increase markedly. With the EU suffering many of the same growing challenges as the UK from 18/19 onwards, supply outside the bloc became crucial.
This season, we have already recorded a strong start from Ukraine. During the July-November period, 191Kt of Ukrainian OSR was shipped to the UK, accounting for 79% of all British rapeseed imports. This already represents 57% more than all Ukrainian rapeseed imports from last season.
Before Christmas, the Ukrainian ministry confirmed that they had no plans to restrict exports, unlike neighbouring Russia. Although, it has subsequently introduced an export cap of 24Mt for corn. With Ukraine reducing their rapeseed area this year, and still much of the growing season ahead to dictate yield, the volume of exportable surplus for the next marketing year remains distinctly uncertain.
There may be a need to look further afield should there be limits on Ukrainian supply. With Australia and Canada both key origins for EU rapeseed (canola), planting intentions and production potential from these regions becomes key for global supply.
Australia has already seen a surge in their exports in November, with Germany and China their biggest customers. Analysts are expecting December figures to be even bigger. With Australia producing their fifth largest canola harvest on record this year, they are poised to take advantage of the European shortfalls in production. Analysts are also expecting an increase in the Canadian canola area this year, pegging this around +6%. Attractive margins, resulting from high export demand and tightening supplies underpin this estimation.
Since the shock of initial lockdowns last March, the EU crush capacity has been on the road to recovery. By November last year, capacity was only 7 percentage points behind the same point a year earlier, at 76%. This points to continued recovery as lockdown measures start, and continue, to ease across the continent during the months ahead.
While lockdown measures are still in place across swathes of Europe, the impact on biodiesel has been less than other biofuels. This is due to its heavy use in commercial traffic, which has still been largely flowing throughout the pandemic. However, continued easing of restrictions will lead to more movement. The resulting pick-up in demand could lend further support to the rapeseed market.
Further support could also be felt as Erith’s crushing plant moves up to speed. It reopened in November following June’s explosion. With crushing ability for c.1Mt of rapeseed on an annual basis, it is still unclear as to how much capacity it will utilise this year.
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