EU Rapeseed-Ukraine winterkill to keep market tight

16:35, 09 February 2012
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Severe winter weather threatening...

Severe winter weather threatening crops in eastern Europe could further strain a tight rapeseed market, although increased shipments from the UK and Australia should give some relief to the market in the short term, traders and analysts said, according to Reuters Africa.

Like the rest of the oilseed complex, the European rapeseed market is also liable to draw fresh direction from Thursday`s world crop estimates from the U.S. Department of Agriculture, with attention focused on how the USDA quantifies the impact of drought in South America.

Extreme sub-zero temperatures may have killed rapeseed plants in parts of Ukraine, usually the main exporter of the oilseed to the European Union, after the Black Sea producer already saw a poor sowing campaign due to drought.

"The market is realising that the European rapeseed supply and demand balance for 2012/13 is already looking tight," Edouard Tallent, analyst with French consultancy Offre & Demande Agricole (ODA), said.

"Our European balance depends significantly on Ukrainian imports and we can already be pessimistic about the 2012 harvest in Ukraine," he said, adding ODA expects this year`s Ukrainian crop to be below 2011 production.

The situation was less worrying within the EU, with no expectations at this stage of major rapeseed losses in top producers Germany and France, but there were concerns about potential winterkill in Poland, another leading producer, analysts said.

Ukrainian exports towards the EU have already declined this season and coupled with a smaller EU harvest have eaten into the region`s surplus, with ODA projecting 2011/12 ending stocks at just under 1 million tonnes, which it sees as a minimum level to cover needs until the new crop arrives.


Tensions in rapeseed supply have supported benchmark prices on the Paris-based futures market, with support also coming from the drought affecting soy crops in Brazil and Argentina and from rising crude oil prices.

Front-month rapeseed futures hit a near eight-month high at 473.75 euros on Jan. 31 amid a squeeze on the expiring February contract. Spot prices traded on Thursday morning at around 448 euros.

"Rapeseed crops are suffering and operators are pretty bullish on prices," one futures dealer said.

Tension on the rapeseed market in the coming months will also be determined by the state of European biodiesel sector, which mainly uses rapeseed oil as its feedstock.

Biodiesel demand could remain curbed by plant closures this year, as competition from imports and recycled oil continues although operators said demand could recover in Germany and France.

"Biodiesel demand for blending (in Germany) was depressed in 2011 as oil companies had exceeded their compulsory blending targets in previous years and were able to transfer this credit into 2011," a trader said.

"This factor will be gone in 2012 which could help demand."

Rapeseed shipments from Britain should also ease supply tensions in the EU, especially in Germany, with traders expecting a surge in exports following a record 2011 crop.

"There is a big export programme in February and a big export programme in March. It probably starts slowing down after that. It is mainly into Germany," one UK oilseed trader said.

UK rapeseed exports for the first five months of the 2011/12 season, which started on July 1, 2011, totalled 321,773 tonnes, more than double the 155,849 tonnes in the same period a year earlier, according to customs data.

"We are looking at something like an 800,000 tonne exportable surplus," the trader said.

Exports from Australia to the EU should also rise this season and offset lower Ukrainian volumes, even if shipments were being slowed by port congestion, traders said.

"For the moment we`re compensating with imports that are arriving from Australia and from Canada," the dealer said.

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