Oilseed rape being harvested© Tim Scrivener

A combination of low oil prices, eurozone woes and a general election too close to call are creating a perfect storm for oilseed rape markets.

New crop rapeseed is at £240-£250/t ex-farm for this harvest and including bonuses will give a price of £260-£265/t, says Jonathan Lane, trading director at Gleadell.

See also: Two farmers argue hybrid versus conventional OSR

“Doing the on-farm gross margin calculation, it is still profitable, but only just.”

Group 1 milling wheat comes top, assuming a £25/t milling premium and decent yields.

This is followed by first feed wheat and then oilseed rape is third, £50/ha behind.

“This is pretty miserable when compared with two years ago,” he says.

Market drivers

There have always been large swings in the market.

Adding value to oilseed rape by growing for speciality oil markets.

Growers can add value to their 2015-16 crops by opting for premium, added value contracts for the food and polymer sectors, says Philip Kimber of Frontier.

High oleic, low linolenic (Holl)

This is a healthier oil destined for the food and cooking sector and there is growing demand.

It has two features, first it is higher in oleic fatty acids, which are monounsaturated and, therefore, reduce levels of the unhealthier, saturated fats.

“It is used by the food sector to replace saturated fats.”

Second, it is low in linolenic acid, which makes it more stable at high temperatures when cooking. “This means it can be used for longer for frying before you see the discolouration.”

There are two key varieties V316 and V295 and premiums have been typically £30/t this year and there are still premiums for the coming harvest.

“The HOLL area is expanding to meet rising demand for oil driven by the trend for healthier eating,” he says.

High erucic acid rapeseed (Hear)

The second market is the high erucic acid oil and new contracts will be announced shortly.

Frontier has been involved with this for more than 25 years and last year, there were premiums of £80/t and Mr Kimber believes this will continue to be attractive for growers.

“We have an exclusive contract with Croda Europe and are looking for up to 25,000ha. It is the largest buyer of Erucamide which is a slip agent [lubricant] for polymers. For example, it is used in plastic bottles to enable the tops to come off.”

“At 2009 harvest, we saw a price of on farm ex £210 and in 2012, it was £400. But the average of the last five years, £308/t, is well above the current price of £240-245/t.”

There are several reasons for the low price, first being the sterling:euro exchange rate with the pound moving from the low €1.20s up to €1.40.

Each 1c difference in exchange rate equates to an extra £3/t rape price and in the past year, have seen a €0.20 change.

This equates to £60/t from currency alone, he says.

Another factor is the low oil price, with biodiesel accounting for one-third of demand in the EU.

“We have seen the price of crude fall from about $120/barrel down to just $50/barrel. And with lower diesel prices, crushers and processors are under pressure cutting the price they can pay for rapeseed,” says Mr Lane.

Looking to next year, it is a mixed picture. “We’ve got to watch currency and there is an awful lot of politics before next harvest including the May general election and its aftermath.”

Adding to this is the US Federal Reserve saying it is going to raise interest rates plus EU woes over Greece and the euro.

Soya prospects

Soya is a key part of the global oilseed market and Frontier’s UK oilseed trading manager Philip Kimber, points to reports that South American soya harvest prospects are looking quite decent so far.

“About 60-70% of the harvest in Brazil has been completed and the Argentinian harvest has just started.”

He says there are few opportunities for an upward spike, but with the truckers strike in Brazil and Argentinian farmers holding on to product due to currency concerns, has helped support oilseed values.

The next key period is the US soya planting and growing season and it is still too early, although Mr Kimber says indications are that it could be similar in area to last year.

There could still be weather related spikes in the coming months.

For example, Mr Lane says: “If the US experiences a heat wave like last year, we could get up to £400/t, if not it could fall to £200/t. It is all to play for.”

In Europe, the forecast for next year is a 7% decline in OSR planting, from 23m tonnes down to about 21m tonnes, says Mr Lane.

In the UK the latest HGCA survey says the OSR area is unchanged, but anecdotal evidence suggests it is about 5% lower, back to 2.1m tonnes. “This is enough for the UK.”

Oilseed rape

© Rex Features

Managing risk

So for growers who want to take risk out of their marketing strategy, they can lock into a base price giving themselves protection against further falls, in conjunction with buying call options to benefit from any uplift.

“Today, you can get a minimum price contract of £225/t, but if the price goes up, you can still benefit.

“These options are not really for £5-10/t differences, but designed to cover for significant weather problems or other major incidents like currency, resulting in £50-80/t difference,” explains Mr Lane.

“For example, if the Conservatives get back in and we see upward pressure on the exchange rate, we could see OSR drop back to £200/t. If Labour and Scottish National Party get in, we could see the pound struggle to 1:1 against the euro with upward pressure on price.”

In summary, it protects farmers against the price going back to £200/t with the chance to buy any upside in price, says Mr Lane.

If you want to move OSR at harvest, there are storage deals still available, says Mr Lane. Its virtual storage with the crop going to the crusher/store and the farmer can take a price later.

One approach could be to forward sell 40%, sell another 40% into a pool and take advantage of a minimum price contract for the remaining 20%.

Mr Kimber also suggests using call options to gain any uplift in price due to any weather movements. “We saw a 10-fold increase in their use last year and see them being important again for the new crop.”

Planting decisions

Planting next year, opt for a high yielding variety and use low risk marketing strategy, says Mr Lane. “Deal with a merchant/trader who has access to global information and knows the market.”

Mr Kimber advises making the most of bonuses to help lift the price.

Oli levels are typically 44-45% but some last year got up to 51%. “This combined with bonuses for moisture and admixture can help get the price nearer the £300/t.”

Moisture is normally 9% and if you get below this, you can secure bonus. It’s similar with admix below 2%.

“Therefore, farmers will see a higher price for clean, dry good-quality crops.”

Oilseed rape gross margins – John Nix value and with OSR prices £50/t higher or lower. 

 

-£50

John Nix

+£50

Yield (t/ha)

 

3.4

3.4

3.4

Price (£/t)

 

215

265

305

Output (£/ha)

731

901

1,037

Variable costs

Seed

Fertiliser

Sprays

Total

 

51

192

196

439

 

51

192

196

439

 

51

192

196

439

Gross margin

292

462

598