April 18 – What Might Europe’s Rapeseed Market Look Like in 2018/19?

The USDA GAIN report is out. Why is the EU rapeseed market so important? It’s time to debunk the details of what’s going on in the “bloc”.

Why is the EU rapeseed market so important? It’s time to debunk the details of what’s going on in the “bloc”.

According to production data gathered from the USDA, the EU  has been the world’s leading rapeseed/canola producer since 2003/04. Comparably, Canada has been the second-largest producer in the past five years, as shown on the chart below. Over this time frame, Canada’s canola production averaged 16.4 million tonnes while the EU’s average rapeseed crop was 21.3 million.

We have to point out that the Great White North was very close to taking the lead this past year in 2017/18 when Canada’s canola production was pegged at 21.5 million tonnes versus EU’s rapeseed production of 22.1 million.

 

Not only the EU is the largest world’s largest rapeseed producer, but it is also the world’s second-largest importer after China. We need to emphasize though that the EU rapeseed demand outpaces supply. In other words, the EU is not self-sufficient and needs to rely on rapeseed imports to meet demand needs (more on this later). Over the past 5 years, the EU imported on average 4.3 million tonnes per year.

 

Since Canada is world’s leading canola/rapeseed exporter, the EU rapeseed market is pretty important to respect and understand. For the record though, the EU is not a big exporter, as they are expected to ship out only 400,000 tonnes in 2018/19, compared to Canada’s 12.5 million tonnes.

In a report released in March, the USDA attaché in the EU is expecting the 28-country block to increase the total area planted to oilseeds in 2018/19 by nearly 2% compared to the previous year.

 

Among these three crops, the E.U.’s 2018/19 rapeseed acreage expansion is the most prominent. Rapeseed is also the EU largest oilseed crop, as shown on the chart.

On the supply side of the EU rapeseed equation, the US attaché is forecasting 2018/19 acres at 17.3 million acres in 2018/19. This would be up 4% from 2017/18’s seeded area of 16.4 million acres.The increase is mainly attributed to expansions in France and Romania. This offsets reductions in the likes of Poland and Germany. One last thing that’s important to understand is that EU rapeseed acres are planted in the fall, and then harvested in June/July. This is important because it shows some of the cycles of the rapeseed/canola market.

On the demand side of the EU rapeseed equation, 2018/19 domestic crush is pegged at 24.7 million tonnes, unchanged from 2017/18. Biodiesel used via rapeseed oil and rapeseed meal used for livestock feedstuffs are the two major components of the EU domestic demand for rapeseed.

EU’s demand for rapeseed meal cannot really grow due to other competing feedstuffs such as soymeal. Due to the higher content of protein, soymeal remains the first choice for EU livestock feed operators.

Also, the USDA attaché foresees slightly weaker demand for rapeseed oil coming from the EU biodiesel industry in 2018/19.

In order to meet demand, the EU has to be reliant on some imports Ukraine and Australia are by far the largest rapeseed exporters to the EU. market.

According to the USDA attaché in Australia, the EU is expected to remain Australia’s major export market, accounting for over 60% or Australia’s canola exports in 2018/19 (the equivalent of about 1.8 million tonnes of Aussie canola going to the EU). Over the past 5 years, the EU market has accounted for 50% of Australia’s canola exports.

This is due to Australia’s ability to export into the European biofuel market by certifying their canola as sustainable, something as reported last December.

However, EU rapeseed imports are expected to plummet by more than 15% year-over-year to 3.3 million tonnes in 2018/19. This is due to improved production prospects and more soybean imports. Speaking to the latter point,  EU crushers obtain a better margin by crushing soybeans.

The net result is the EU rapeseed ending stocks edging higher by 5% to 1.09 million tonnes in 2018/19. This is not up burdensome by historical standards represented by the 5-year average pegged at 1.8 million tonnes.

To sum up, an increase of the EU’s rapeseed acres in 2018/19 is expected, similar to other major rapeseed producer countries such as Australia or Canada. Despite this expected acreage expansion, the E.U rapeseed supply in 2018/19 cannot keep up with the domestic demand. Therefore, the E.U. will continue to be reliant on rapeseed imports in 2018/19.

One bearish development for canola producers in Canada is the latest achievement of canola growers in Australia who can label their canola crop as “sustainable” if exported to the EU rapeseed market.

Let’s put that into perspective though. According to StatsCan data, Canada exported roughly 800 000 tonnes of canola to the EU back in 2015/16. Last year, in 2016/17, Canadian exports to the EU totaled 1.4 million tonnes. In the first seven months of 2017/18, Canada shipped roughly 800,000 tonnes and it will likely top last year’s exports.

Put it this way: if Canada is able to get a similar “sustainability” designation for its canola, then it is likely that Canadian canola exports to the EU will get a boost. It is hard to say to what level Canadian canola exports will amount to. A rough guess is that Canadian exports could match Australia’s export volumes to the EU, that is, exports will increase by at least 500,000 tonnes if not more.

That would a breath of fresh air for canola prices in Western Canada…but this is more of a political play than pure supply and demand fundamentals.

 

 

GAIN REPORT

3. Rapeseed Complex

Coordinator: Leif Erik Rehder, FAS/Berlin

Rapeseed is the dominant oilseed in the EU making the EU the world’s largest producer of rapeseed and products. Demand for rapeseed exceeds domestic supply which leads to the import of large quantities of rapeseed for crushing. EU rapeseed imports mainly come from Ukraine and Australia, which together account for the great majority of imports.

The EU rapeseed market is driven by the demand for products after crushing – rapeseed meal and rapeseed oil. Rapeseed oil is mainly used by the biodiesel industry. The industry directly depends on biofuels policy decisions since production levels are mandated by the RED of the EU. Compared with biodiesel, food and industrial use of rapeseed oil influence demand to a lesser extent.

Rapeseed meal is used in the livestock sector as the EU is a leading producer and exporter of meat and dairy products. Here, rapeseed meal competes with U.S. soybeans and soybean meal from the United States and other suppliers as well as domestic sunflower meal and grains in feed ratios. However, rapeseed meal can just replace soybean meal to a certain extent. Due to its high protein content, soybean meal is the top choice in feed ratios for poultry and pork.

MY 2018/19 
European farmers planted more rapeseed in autumn 2017 and planting weather was quite good across the continent during autumn. Especially farmers in France and Romania expanded their area due to good profitability. French farmers return to normal acreage after the complication with plantings last year. Romanian farmers continue to expand due to high profitability. Germany and Poland reduced acreage.

There was not much winterkill this season until the end of February. Then, there was a cold snap in Austria, Croatia, Eastern France, Czech Republic, Germany, Romania, and Poland. This might especially affect plantings in Eastern Germany and Western Poland since there was no snow cover to protect against winterkill. Also, periods of heavy snow fall in the United Kingdom have the potential to curtail local yield to some extent.

As of mid – March 2018, overall EU rapeseed crop is in good condition since winter was not severe in most of the EU. But, the mild winter might result in higher pest and disease pressure in the spring which in turn may reduce yields. In total, already high yields are expected to increase slightly across the continent. As a result, higher acreage and higher yields sum up to higher forecast of EU rapeseed production in MY 2018/19.

The larger domestic crop plus stocks is expected to result in an ample domestic rapeseed supply. This will further add to the pressure on the EU rapeseed market especially as demand for rapeseed oil by the biodiesel industry is forecast to remain weak. As result, imports of rapeseed from Ukraine, Australia, and other origins will be lower, though forecast for supply on the global rapeseed market is good. EU rapeseed crush remains stable on a high level. This is mainly due to high availability of domestic rapeseed. High availability will also lead to higher exports of rapeseed. At the end of the MY, stocks of rapeseed are expected to increase slightly.

MY 2017/18

The EU rapeseed market continues to be under pressure (pushing down on me…). There is plenty of supply fueled by better than expected domestic production with a good share still in farms stocks. And, supply of rapeseed on the global market is abundant. Furthermore, there are a numbers of factors weighing on the EU rapeseed product market. Foremost, there is low demand for rapeseed oil from the biodiesel sector which results in low crush margins. Competition with other feedstocks like used cooking oil, soy methyl ester from Argentine, and palm oil is growing. It is also forecast that Argentina could export less soymeal to the EU. This could result in higher imports of soybeans and lead to an increase in soybean crushing, partially at the expense of rapeseed. And, the prospect of a good EU rapeseed crop in MY 2018/19 is further depressing the market.

EU rapeseed production had to be revised upwards since crops in France, Denmark, the United Kingdom, Sweden, Lithuania, and Bulgaria were higher than expected. This was mostly due to exceptional yields which more than offset downward revisions for production in Germany and the Czech Republic. The EU has already imported large quantities of rapeseed in the first half of MY 2017/18. This was mainly fueled by record rapeseed imports from Ukraine. European crushers are expected to again import large volumes from Australia in the remaining three months of the MY 2017/18. As a result, total imports are expected to be just slightly lower than the very strong incoming shipments seen in MY 2016/17. But, demand for rapeseed in the EU is weak and there is still a good share of the rapeseed crop on EU farms that need to be sold soon. This is expected to limit demand to a certain extent.

Exports are slightly lower due to strong domestic demand in the first half of the MY 2017/18. The abundant supply of rapeseed on the global market limits export opportunities in the remainder of this season. Due to good availability of rapeseed, EU oilseed industry increased rapeseed crush in the first half of the MY 2017/18. For the remainder of the season, crush is expected to slow down to a certain extent. A fire in a French rapeseed crushing facility adds to decrease in crush in that country. Germany is also expected to reduce crush slightly. But, this is more than offset by higher rapeseed crush in the United Kingdom, Lithuania, Poland, Estonia, Hungary, Romania, Czech Republic, Latvia, and Slovakia. In total, rapeseed crush in MY 2017/18 is forecast to remain above the level of the previous season. Ending stocks are expected to be slightly higher at the end of MY 2017/18.

Rapeseed Meal

Demand for rapeseed meal in the EU is good. Use of rapeseed meal in feed ratios – especially in the dairy sector – continues to increase. But, ongoing weak demand for rapeseed oil might reduce rapeseed crush and it is uncertain to what extent higher rapeseed meal prices can offset lower returns from rapeseed oil sales. The use of rapeseed in animal feed also varies greatly among EU countries. Its use is most prevalent in countries that have a long rapeseed crushing history and high dairy production, like Germany, France, the Benelux, and the UK.

MY 2018/19

Rapeseed meal production is directly linked to rapeseed crush. So, rapeseed meal production is forecast to remain stable on the higher level reached in MY 2017/18. There is not much supply on the world market, so imports are forecast to increase slightly. For most EU counties, use of rapeseed meal in feed ratios is forecast to be stable. Some countries like the Netherlands, Poland, and Ireland expect to use more rapeseed meal which just slightly increases total use in MY 2018/19. Availability of rapeseed meal stays tight and stocks are projected to remain fairly balanced. This also limits exports of rapeseed meal to other countries.

MY 2017/18

Production of rapeseed meal in the EU is lower than expected. And, demand for rapeseed meal exceeds domestic supply. Availability of rapeseed meal on the world market is limited; imports are expected to be slightly lower than in MY 2016/17. Tight supply on the domestic market will lead to stable consumption in animal feed, lower exports, and further decreasing ending stocks.

Rapeseed Oil

There is great uncertainty on the rapeseed oil market and most of it comes from developments on the EU biodiesel market. Changes in EU biofuels policy through the RED have already led to lower use of rapeseed oil for biodiesel in recent years and the outlook remains negative since political support for rapeseed oil as primary biodiesel feedstock is declining. There is strong competition with animal fats and recycled oils as well as crude oil prices affecting profitability of producing rapeseed oil. Potential of rapeseed oil is also limited through strong competition from other vegetable oils as well as from biodiesel imported from Argentina. As a result, it will be a challenge to sell rapeseed oil and rapeseed oil-based biodiesel on the EU market in coming months. Though, low prices could increase competitiveness of both.

For more information on EU biodiesel market, please see website of our Office of Agricultural Affairs at the U.S. Mission to the European Union with latest EU biodiesel report and information about Renewable Energy Directive of the EU: http://www.usda-eu.org/trade-with-the-eu/eu-import-rules/biofuels/

MY 2018/19

Rapeseed oil production follows crush and is expected to remain stable on level reached in 2017/18. Abundant supply of rapeseed oil is expected to limit imports in the medium term on one hand. On the other hand, competitive prices for rapeseed oil might increase exports and EU rapeseed oil might gain some market share on global markets with China being a likely market. The outlook for industrial use of rapeseed oil is negative due to aforementioned reasons. But, the competitive prices are expected to increase food use of rapeseed oil. The oversupply of rapeseed oil on the EU market will lead to an increase in exports and ending stocks.

MY 2017/18

There is plenty supply of rapeseed oil on the EU market fueled by rapeseed crush and high beginning stocks. This is expected to result in slightly lower imports and higher exports. Forecast for industrial use was revised downwards due to weaker demand by biodiesel industry. Marketing campaigns have led to higher consumption in countries like the United Kingdom and Germany. However, higher food use of rapeseed oil can’t offset lower industrial use. This will further increase ending stocks.

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H/T: GAIN FAS USDA
About the Author
Adrian Uzea

Hailing from a farm in Romania’s breadbasket, Adrian’s keen interest in agriculture inspired him to obtain a Master's degree in Ag Economics from the University of Saskatchewan. Adrian provides deep, original insight for Canadian farmers of grains, oilseeds, and other specialty crops to help improve their bottom line. He was previously a Market Analyst with a provider of grain marketing services like DePutter Publishing.