26 December 1997


OILSEED rape has been the one bright spot in an otherwise dismal year for arable farmers. And the good news is that this looks set to continue well into 1998.

Prices have climbed steadily since harvest, reaching £165/t ex-farm in the weeks before Christmas, pulled along by strong world demand for vegetable oil and near record low stocks. (These are put at just 10% of usage, despite 1997s big worldwide harvest.) Crushers are having one of their best years ever and big crush margins have meant good farm prices.

But there is a catch. Inevitably farmers across Europe have been attracted by the wide oilseed/wheat price spread and have put more of their land into oilseed rape.

Recent analysis by Cargill suggests EU winter plantings could be up 200,000ha (494,000 acres) to about 3m ha (7.4m acres). France alone has lifted rape plantings 15% to 1.1m ha (2.7m acres), though how much of this will be split between food and non-food is not yet decided.

Bigger plantings will mean bigger area aid cuts for 1998/99. This season alone will see UK aid cheques trimmed about 7% due to over-planting. And this penalty will be added to any cut triggered next season. Trade analysts point to a possible 15% to 20% aid cut for 1998/99, though it remains to be seen whether this will prompt any cutback in spring plantings, so lessening the blow.

Balancing payments for this seasons aid – due to go out in April – will also be reduced by another 3% to 5% due to EU prices having exceeded world reference levels (as agreed with the US in 1992) for much of the time since harvest.

But at least market prospects continue to look good. The next few months will be influenced by Indonesian palm oil production, which enters a seasonal downturn. Problems with El Niño and pollution in the area could exacerbate this drop in output, helping to lift prices.

South American soya and sun crops will then hit the market in March and April, setting the tone for the year ahead. Despite El Niño, crops are looking good. But this is already accounted for in world prices. A drought between now and harvest could send prices higher, but there is little to suggest they will go lower, with crushers keen to get stuck in.

In North America, the Canadians are also expected to increase canola plantings in response to the good price spread. But soya plantings in the US could be down in the spring, following a rise in winter wheat sowings.

Generally, world oilseed output is expected to rise again in 1998, following a big crop in 1997. But demand is there to absorb it, stocks are low and prospects are good.

As an additional bonus, the $ is probably going to be the "farmers friend" – well, for European farmers anyway. With the US economy in danger of overheating, further interest rate rises are expected State-side, leading to a strengthening $ in 1998. This will tend to raise the price of US soya exports to world markets, improving the competitive position for EU crushers.n

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