Uncertainty shrouds oilseed rape markets

Oilseed rape markets should remain relatively firm for the remainder of this year, but there is growing uncertainty about prospects for 2010, according to one analyst.

Unlike cereals, prices have remained relatively strong over recent weeks and strengthened further to £230/t this week.

This was partly due to relatively tight world oilseed stocks, concerns over the size of the US soya bean harvest and strong demand for vegetable oils from countries like India and China, said Ernesto Zamudio, trading manager at oils and fats manufacturer AarhusKarlshamn (AAK).

“Palm oil and soya bean oil account for 50% of the total fats and oils produced in the world, so in the long-term it is these that will be the main driver of oilseed prices,” he explained.

“Recent wet and cool weather in the US mid-west is putting some pressure on harvesting the US soya bean crop, but at the moment it’s unclear whether yields will be affected.”

If the crop has deteriorated this could support oilseed prices but if, as USDA suggested recently, yields were unaffected, the USA could be looking at a record soya bean crop of 88.5m tonnes, which would put pressure on world vegetable oil markets, he said.

What’s more, big soybean crops from Brazil (62m tonnes) and Argentina (52.5m tonnes) are due to hit the market next spring, which could put further pressure on oilseed prices, he said.

World rapeseed and canola production has also exceeded expectations in many areas – including Europe – this season and supplies are forecast to rise to 63.43m tonnes in 2009/10.

On the upside, demand in countries such as India and China continues to increase and biofuel mandates for the inclusion of vegetable oils in transport fuel will support demand, Mr Zamudio added.

“China and India are by far the biggest consumers of vegetable oil in the world and this year both countries recorded 6.5-7% GDP growth despite the recession. As their incomes increase, so we expect their demand for oils and fats to continue growing.”

He acknowledged some countries, such as Germany had scaled back their ambitious targets for the inclusion of biofuels in transport fuel, which made it harder to predict how demand could be affected in future years.



Uncertainty over size of 2009 US soya bean crop due to poor weather

US soya bean crop may not suffer too much from late harvest Ð yields ok

Strong veg oil demand from India and China

Potentially large Argentinean and Brazilian soya crops to hit market in spring 2010

Lower veg oil output from Indonesia and Malaysia

Palm oil stocks in Malaysia increasing slowly

World stocks remain relatively tight

Larger EU stocks of cereals and oilseed rape putting pressure on prices

Higher crude oil prices could pull up veg oil prices

Some estimates suggests crude oil prices could weaken towards end of 2009

Government mandates encouraging use of veg oils in fuel

Some countries (e.g. Germany) scaling back ambitious biofuel inclusion targets Ð could reduce demand

Economic recovery Ð increased confidence in commodities

Uncertainty over speed of economic recovery

Hedge fund speculative activity

Tighter regulations on hedge fund activity could deter some investors

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