Record Rapeseed Crop Extends Oilseed Glut as Paris Price Slides

Record rapeseed harvests from Europe to Canada are set to compound a global glut of vegetable oil, sending prices in Paris to the lowest in more than three years as stockpiles climb to an all-time high.

Production of rapeseed, the most common crop used in biodiesel in the European Union, may jump to a record 66.4 million metric tons, U.S. Department of Agriculture data show. In the EU, the top producer and consumer, farmers are harvesting a crop that’s more than a million tons larger than last year’s as acreage expanded in Germany and yields rose in Hungary and Poland, Hamburg-based researcher Oil World projects.

Production of oilseeds is rebounding globally after drought last year damaged crops from U.S. soybeans to eastern European sunflowers. Prices on NYSE Liffe in Paris slid 30 percent from an all-time high in July 2012, amid rallies that drove soybeans and corn to records on the Chicago Board of Trade. Producers responded by expanding output of everything from palm oil to soybeans, sending vegetable oil stocks to a record for a sixth consecutive year, the USDA estimates.

“We’ve got a massive world oilseed crop, so that’s weighed heavily on rapeseed and oilseed prices in general,” said Bryan Willey, a grains and oilseeds analyst at Rabobank International in Utrecht, Netherlands. “It was extremely tight for a lot of oilseeds last year, and that threw everything kind of askew. Now the market is finally starting to realize that we’re going to have big crops.”

Rapeseed futures are down 20 percent this year on NYSE Liffe in Paris, outpacing the 12 percent decline in the most-active soybean contract in Chicago. The price fell to 353 euros ($469) a ton on July 31, the lowest since August 2010. The decline may extend to 300 euros a ton if oilseed crops maturing in North America escape damage from cold weather in the next few months, said Owen Cligg, the trading manager at United Oilseeds, a Devizes, England-based cooperative.

French Fries

Oil produced from crushing rapeseed is used to make everything from McDonald’s Corp. fries to Archer-Daniels-Midland Co. biofuel. About 67 percent of the EU’s biodiesel is made from rapeseed, according to Fedoil, a Brussels-based industry group that represents oilseed companies including crushers and refiners. Rapeseed accounts for about 20 percent of the bloc’s vegetable oil use in food, USDA’s Foreign Agricultural Service estimates.

Global Rapeseed

Stockpiles of rapeseed oil globally will rise 18 percent to an all-time high of 3.12 million tons in 2013-14, helping send combined inventories of nine major vegetable oils to a record 21.4 million tons, the USDA forecasts. Rapeseed oil is the third most-commonly produced vegetable oil, after palm and soybean.

The EU’s harvest may be a three-year high of 20.5 million tons, 5.7 percent more than a year earlier, Oil World said in its most recent monthly report July 16. Germany will overtake France as the bloc’s top producer this year, with Alfred C. Toepfer International, a Hamburg-based trader, expecting the country’s harvest to jump 25 percent from a year earlier to 6.04 million tons.

Rapeseed supplies also will be bolstered by rising output in Ukraine, Russia and Canada, the world’s top exporter and the main grower of the canola variety. The USDA pegs Canada’s harvest at a record 15.3 million tons, up 15 percent from a year earlier, while Agriculture and Agri-Food Canada, the country’s agriculture ministry, estimates output at 14.6 million tons, below the peak of 14.608 million tons produced in 2011-12.

Canada Risks

Slow plant development in Canada still may threaten the country’s output by leaving crops at risk of damage from frost, Oil World said Aug. 6. U.S. soybean crop maturity also has been slower than normal this year amid cool, wet weather. In Iowa, historically the biggest producing state, temperatures dropped to freezing levels as early as Sept. 22 in 1995 in Des Moines, National Weather Service records show. U.S. farmers harvest the oilseed from September through November.

“Cooler weather in the U.S. and Canada could be a bit of a worry because of slow development,” said United Oilseeds’ Cligg, whose company handles 20 percent of the U.K.’s rapeseed crop. “Although the pricing trend is down, it’s not necessarily plain sailing until they get the crop in the barn.”

The USDA lowered its outlook for the domestic soybean harvest on Aug. 12 to 3.255 billion bushels, still 8 percent higher than the previous season. The agency pegs global production of palm oil at an all-time high of 58.09 million tons. Oil World raised its forecast for world sunflower seed production on Aug. 13 to 40.2 million tons, also a record.

“At the end of all this there’s just going to be a massive oilseed crop globally,” Rabobank’s Willey said. “I don’t see as much upside risk in the market as I do downside.”

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