The new season for the rapeseed market began somewhat pessimistic, as the forecast of the Canadian canola crop was reduced significantly. In general, the situation in Canada is now one of the most significant for pricing and understanding of the market prospects. In turn, Ukraine is completing harvesting of a fairly good rapeseed crop, and forecasts for Australian production are currently optimistic. Let's take a closer look at the potential of the rapeseed production in the world and the expectations for trade on this market.
According to current estimates of Oil World, in 2021/22 season, the global rapeseed production will be lower than initially expected and will fall below the last year's result (64.7 mln tonnes). Until recently, the experts had expected a slight growth of rapeseed crop - up to 65.4 mln tonnes. However, further deterioration of the prospects of Canadian harvest has made adjustments to the global balance. Taking into account the latest revision of the forecast for Canada, the total global production is set at 63.7 mln tonnes at the moment.
Greater expectations for the oilseed crop were shattered by the harsh weather conditions seen this summer in Canada. High air temperatures and a prolonged lack of rainfall in the country have caused irreversible damage to canola crop. By the end of July, in Saskatchewan province, the largest canola production region, more than 50% of the crop was in poor or very poor condition, while a year earlier this figure was only 3%. Canola yields have been significantly affected in this province, as well as in Mantioba and Alberta provinces. In addition, the level of soil moisture in the producing regions was at a low level, and weather forecasts indicate further persistence of high temperatures and precipitation below normal, which can cause further damage to the crop.
Oil World’s analysts have downgraded the forecast of the production of Canadian canola by 1.7 mln tonnes to 16.9 mln tonnes, which is 2 mln tonnes less than a year earlier, despite the expansion of the planted area under the crop by 8% to three years maximum. The forecast by IGC is more optimistic - 18.8 mln tonnes (-1.6 mln tonnes to the previous estimate, but +0.1 mln tonnes year-on-year). Experts of Agriculture and Agri-Food Canada in their latest report downgraded the forecast for the oilseed crop by only 0.2 mln tonnes to 19.9 mln tonnes (+1.2 mln tonnes year-on-year), but this forecast was made at the beginning of the third decade of July and did not take into account the subsequent influence of weather conditions on the crop.
Taking into account the current disappointing weather forecasts, the production prospects of Canadian canola will be under close attention of market operators in the near future. At the moment, Oil World’s experts expect that the total supply of the Canadian oilseed will decrease by more than 4 mln tonnes in 2021/22 MY, which will also be based on extremely low carry-over stocks of about 1 mln tonnes.
The decline in the oilseed supply is likely to have a more noticeable impact on Canada's export potential than on domestic processing, as strong demand for Canadian canola oil and meal from China and attractive prices guarantee high margins for local processors. However, pessimistic crop prospects will not allow to avoid completely a decrease in oilseed processing in 2021/22 MY.
In turn, the reduction in the supply of Canadian canola for export will lead to a redistribution of demand on the global market. At the same time, Oil World expects that the reduction in rapeseed/canola imports will be observed for price-sensitive markets (Pakistan, Bangladesh, Mexico, UAE). In turn, demand from the EU will remain high, as European countries will need to cover the low carry-over stocks.
Oil World analysts forecast rapeseed import to the EU in 2021/22 MY at 6.5 mln tonnes which is only 0.2 mln tonne less than the record high in a previous season. At the same time European Commission forecasts the import at 6 mln tonnes (+0.2 mln tonnes year-on-year) and Strategie Grains experts suppose that oilseed import will be restrained by the high price for Canadian and Australian product. As a result, by the beginning of the new season the opening stocks of rapeseed in the EU can decrease again, who also will be stimulated by the higher deliveries of the oilseed out of the EU on 2021/22 MY.
The decrease of Canadian canola supplies on the EU market will be partially compensated by Ukrainian oilseed, the production forecasts of which vary by mostly stay unchanged compared to last year. It should be mentioned that this year the rapeseed harvest in Ukraine is delayed and is not over yet. As of August 5 field works were 78% complete. Rapeseed yield is high enough and the harvest areas under the rapeseed will be higher than expected initially due to lower crop losses after winter. However, we should remind, that planting areas under the oilseed in 2021 is lower than last year.
Besides, Australian crop will be able to compensate the lack of Canadian canola on the EU market, as the production prospects are optimistic. Due to wider painting areas under the crop and favorable weather conditions canola production in Australia can reach 4.8 mln tonnes and the harvest is to begin in mid-Autumn.
It should be noted that the current forecast of rapeseed import to the EU can be revised down if the canola production prospects will deteriorate or oilseed crop in Australia will not be as high as expected.
As a result the crushing of rapeseed in the EU in 2021/22 MY can be lower than the current forecast of 22.5 mln tonnes which is in line with the last year's high indicator. We should note that in recent months the margin of the European processors of rapeseed has increased significantly due to rather higher prices for vegetable oils on the global market and good demand. In general processing volumes of rapeseed in the EU last season increased by 1.1 mln tonnes.
Speaking of the rapeseed crop in the EU, Oil World expert forecast the production at 16.9 mln tonnes which is 3-year high. The growth of the production is expected due to improvement in yield in the key producing regions. According to MARS average yield of the European rapeseed (3.2 t/ha) is 2.3% higher y-o-y and 4.8% higher than the 5-year average. At the same time even higher production is restrained by the not high enough planting areas under the crop, which are 8.1% lower than the average. Moreover, the production of the crop in one of the main producing counties - France - demonstrates low results.
We should that European farmers can use attractive prices on the global market and supply deficit of the oilseed and widen significantly the planting areas under the rapeseed for 2022-crop, which to be harvested in August-September.
Is we talk about the attractive price situation for frames we should tone that in 2020/21 MY on the global market of rapeseed as in any other oilseed markets the prices were growing significantly. The upward tendency has been preserved up until current time and in general the fundamental factors do not point to price decline. Low production and stocks in Canada will influence the total supply of the oilseed which is in deficit already, as well as rapeseed oil. At the same time the demand from the EU is expected to be rather high, whereas the EU also has quite low stocks.
Thus, in a near-term perspective the global market will be following the weather conditions in Canada, the completion of harvesting campaign in Ukraine and deliveries of new crop, and also the demand on the crop from the main importers. As for price expectations, currently support factors are quite steady.
Inna Stepanenko
