21 July 1995

Heatwave in USA leaves UK oilseed market in balance

By Philip Clarke

WITH many arable farmers ready to move into their rape crops, oilseed markets are delicately poised.

The main driving force this week has been the heatwave currently affecting the USA, which has created a volatile "weather market" for soya in Chicago.

This may seem far removed from the swathed and desiccated fields of southern and eastern England. But the effect of a fiery trade in the US on Monday (July 17) was to lift oilseed rape prices in the UK by about £3/t to £173/t ex-farm at the start of the week.

"Considering this market has not moved for almost a month, this increase is significant," said Nick Oakhill of merchants Usborne.

Some of these gains were lost on Wednesday, taking about £1/t off UK rape prices. But with every weather forecast prompting some reaction on both sides of the Atlantic, there could be other windows of opportunity for farmers to catch an upturn in the market.

"Weather markets are very fierce," observed Glencore Grain trader Keith Davies. "It was notable that most of the downturn on Wednesday was for oil, rather than beans or meal, as this is where demand is fundamentally weak."

But he is optimistic that there are currently more "positives" than "negatives" in the market and prices could improve further as the season unfolds. In particular, he believes the recent heatwave will have further hit soya yields in the USA and canola (rape) output in Canada.

Recent crop estimates from the US Department of Agriculture forecast soya bean output of 61m tonnes, some 8m tonnes less than last season. The Canadian crop is put at 6.6m tonnes compared with 7.2m tonnes last year.

But closer to home, the EU is expected to be producing more oilseeds this harvest. Trade newsletter Oil World puts rape production at 7.5m tonnes against 7.1m tonnes in 1994/95, due to the increased use of higher yielding winter varieties and the extra area grown for non-food uses.

"Crushers are not short of seed," observed Cargill trader Anne Gutteridge. "They have a big set-aside crop to crush and have already bought large quantities of Polish seed, which is rapidly replacing Canada as the UKs major competitor."

Against this background, and with China still out of the market, and with reports coming in of big yields in France, she is more bearish about the trade. "The one thing that will shift prices up is if farmers across Europe decide to close the barn doors on their crops," she added.

The market could clearly go either way.

A heated "weather market" at the Chicago Board of Trade this week had a direct impact on UK ex-farm rape values. CBOT has also announced plans for a joint venture with the London Commodities Exchange to allow US futures contracts to be traded during European hours.