Viewpoint: Limited supply to support EU RSO prices

Limited prompt feedstock supply and weak global harvest forecasts should continue to bolster European rapeseed oil (RSO) prices in the first half of next year.

European oilseed crushers will start 2021 facing a shortfall of spot supplies of rapeseed feedstock. This is because higher European rapeseed prices in October-November led farmers to sell most their new crop. The Euronext rapeseed February 2021 contract peaked on 23 November settling at €415.50/t ($513.50), higher by around €26/t compared with a year earlier.

“Because of very high rapeseed prices, many farmers sold their rapeseed early on and availability of the crop was almost too good in October and November — we will pay for this at the beginning of 2021,” a German oil mill operator told Argus.

Rapeseed is a key feedstock for biodiesel production in Europe, and higher RSO values can weigh on biodiesel margins and put biodiesel output at risk. Lower margins could force producers to reduce output or shut down plants altogether.

Crushers will depend on imports from major rapeseed exporting countries such as Ukraine and Canada, but availability might be limited. The EU already imported around 1.8mn t of rapeseed from Ukraine in July-November, while overall rapeseed volumes available for export from Ukraine in the 2020-21 season are estimated at 2.2mn t.

Estimates for Canada’s 2020 canola harvest — a variety of rapeseed — were revised lower this month, to a five year-low of 18.7mn t, compared with a previous estimate in September of 19.5mn t. EU imports of Canadian canola have doubled on the year to 1mn t so far in the 2020-21 season, as an ongoing trade dispute is limiting shipments to China, one of the world’s largest importers of rapeseed. But a recovery in canola yields in Australia — historically the EU’s top rapeseed supplier — could ease at least some of the shortfall next year.

Higher prices of alternative vegetable oils in recent months, following an increase in regional and export demand, have also helped drain RSO inventories. Meanwhile, EU exports of RSO rose by 66pc between July and November, compared with the same period a year earlier.

Soybean and palm oil prices, which both reached multi-year highs in the fourth quarter of 2020, are likely to remain strong over the coming months as a result of lower supply. Tight palm oil stocks in key producing countries Indonesia and Malaysia and the ongoing La Nina weather trend — which started to disrupt palm oil output in southeast Asia in the third quarter — is likely to weigh on global supply until the first quarter of 2021, according to forecasts by the Council of Palm Oil Producing Countries (CPOPC). And higher biofuels mandates in both countries will continue to support domestic demand. Front-month palm oil futures prices on the Bursa Malaysia rose to $816/t in November, up by almost $200/t on the year.

Lingering concerns about the 2020-21 soybean crop because of irregular rainfall in South America, combined with strong buying from China, will continue to support soybean oil prices into 2021. Even though there are signs that Chinese demand may be starting to wane, with private-sector importers looking to resell soybean cargoes, China’s imports of soybeans are projected at record levels this season as the country aims to meet demand from its animal feed and vegetable oil sectors. China is the largest importer of soybeans in the world.

In the US — the second-biggest soybean producing country in the world after Brazil — the Department of Agriculture forecasts domestic soybean stocks ending the 2020-21 season at their lowest in seven years and projects average 2020-21 soybean oil prices in the US will reach their highest in six years. The Chicago-listed soybean oil futures front contract surged to $810/t in November, up from $684/t a year earlier.

Meanwhile, a sober outlook for the 2020-21 crop season in the EU will buoy the European RSO market. The EU’s rapeseed harvest for the July 2020-June 2021 season is forecast at 16.6mn t, only 4pc higher compared with the previous season when the harvest only marginally recovered from a 13-year low, according to the European agricultural association Coceral. The EU’s 2020-21 rapeseed volumes are expected to be 14pc below the bloc’s five-year production average.

Argus

Tags: support EU RSO prices