Oilseed rape futures reached record highs this week, tracking soya markets up amid ongoing drought in America and taking prices here to about £380/t ex-farm for harvest.
Last week's US Department of Agriculture report slashed soya yields by 8%, with 34% of the crop rated good to excellent versus 40% last week and 64% at the same time last year. A massive 30% was rated poor to very poor, although there was still time for some crops to recover, given rain at the end of July, said Owen Cligg, trading manager at United Oilseeds.
Harvest was under way in Ukraine and France, with better than expected yields in the former, but poor to average yields in France, he added. The UK harvest was likely to begin next week, but following the torrential rain and lack of sun yields would probably average 3.5t/ha against 3.9t/ha last year.
According to the HGCA's planting survey, GB producers drilled a record oilseed rape area of 736,000ha - 5% up on last year. The Scottish area was 6% down, at 36,000ha. With a 10% drop in yield, the UK may only have 500,000t to export, said Mr Cligg. "The export market was very good until four or five weeks ago, so we could ship 300,000t or more at harvest. That could make the rest of the year quite interesting."
Growers had sold about 30% of their new crop, and were reluctant to lock in much more due to uncertainty over final yields, he added. "Prices have now reached more than £380/t ex-farm for harvest, and £390-395/t for October-December. A lot of growers are holding out for £400/t; whether they get it remains to be seen."
Future trends would depend on how high soya prices went - as well as currency movements. "The euro is quite weak at the moment; if it went back to previous levels against the pound we could easily be over £400/t." Rape oil remained good value against soya oil, so if biodiesel demand improved, rapeseed would benefit, said Mr Cligg. "But biodiesel demand is poor - Erith has not been crushing at full capacity, so it's unclear what the domestic crush will be."
In the longer run, higher global prices would curb demand for oilseeds, he added. "And they will also encourage greater production for next year, particularly in South America." Brazil could potentially harvest 80m tonnes of soya next year, against 65m tonnes this year. "That could come onto the market in February/March, which would give it a big jolt - but it's still a long way off."
2012 oilseed rape outlook
• Harvest price £380/t ex farm, October-December £390-395/t
• UK 2012 crop - estimated 30% sold
• Rape oil competitive against soya
• Good export prospects
• Euro value and soya trade - important influences of UK prices
• Longer term, high prices will curb demand