OSR prices strengthen in tight global market

Oilseed rape prices continue to increase, giving growers a good opportunity to lock into prices exceeding £400/t this harvest.

Both old and new crop markets gained more ground as trade resumed after Easter, buoyed mainly by fresh reports of a tightening soya bean supply and demand balance in the US and South America.

A US Department of Agriculture report on Tuesday (10 April) cut 2011-12 global soya bean production by 5m tonnes to 240.15m tonnes, with production estimates in Brazil, Argentina and Paraguay downgraded due to drought. There was also a reduced soya bean area in the US, with export sales said to be strong as China came back into the market.

This was compounded by reports that yield potential of European crops had been reduced by winter kill in Eastern Europe and ongoing drought in a number of countries, including UK, France and Germany. Openfield oilseed trader Peter Hall estimated Europe would need around 3m tonnes of imports to meet demand this season following the deteriorating crop prospects.

The bullish sentiment meant the French Matif May 2012 contract had climbed to a 15-month high of €508/t by Tuesday (10 April), with UK old crop oilseed rape valued at £390/t ex-farm as Farmers Weekly went to press. New crop values had risen to £375-380/t for harvest delivery and at these levels, with oil bonuses of 10-11% farmers could easily be looking at a harvest price of over £400/t, Mr Hall said.

“For those that need to move crops at harvest, these prices are a very good opportunity to sell,” United Oilseeds trading manager Owen Cligg added. “Even though the current consensus seems to be that prices may go higher, growers should be looking to lock a proportion of crop into these prices. A quarter to one third sold at the moment is probably a good place to be.”

Gleadell said there was potential for higher prices in the medium term and, as long as the bull story remained in place for US soya beans, the European rapeseed market should continue to find some support.

But traders said the rise in rapeseed values was yet to be matched by higher rape oil prices, putting pressure on crush margins and potentially leading to some closures and a resulting fall in demand. Further bearish influences could come from profit taking on futures markets and increased supplies of Australian canola.

The sterling/euro exchange rate would also play an important part in UK pricing, with a 0.01 change equating to roughly a £3/t movement in price, Mr Hall said. For example, a Matif price of €440/t at an exchange rate of £1: €1.204 equated to a price of £365/t, but at an exchange rate of 1.214, the price dropped to £362/t, he explained.

OSR market drivers

• Bulls Bears

• Reduced soya bean supply from US and South America – tight world oilseed markets Crush margins under pressure – potential for reduced demand

• European crop yields hit by winter kill (Ukraine/ Black Sea) and drought – recent rain insufficient More Australian crop on to market

• Firm crude oil prices Profit taking by funds

• Increased demand from China/ others Exchange rate fluctuations and economic uncertainty