World supplies of rapeseed and canola likely to remain tight in the 2012/13 season

March 2012

Global demand

Even if Canadian farmers harvest a record canola crop of 14.5–15.0 million metric tons (MMT) in late summer 2012, there is a high probability that world production of rapeseed and canola will remain behind requirements in the 2012/13 season—mainly due to poor winter crop production prospects in the European Union (EU) and Ukraine.

Considering prospects of reduced carry-in stocks in July 2012, there is a high probability that rapeseed supplies next season will remain tight in the EU-27 as well as in Ukraine. Unusually dry conditions have prevented completion of planting intentions of winter rapeseed in several European countries. Also, an unusually large share of the planted winter rapeseed did not germinate well and will be abandoned, primarily in Ukraine.

For the EU-27, we predict that the winter rapeseed area available for harvest in the summer of 2012 will decline for the second consecutive year and be down by approximately 300,000 hectares (ha). In current Oil World estimates (see oilworld.de), it is assumed that the weather in February through June 2012 will be relatively better than last year, primarily in Germany and Poland. However, total production in the EU-27 may recover only moderately to around 20 MMT in 2012 (including spring-sown varieties), up only 0.8 MMT from last year but still down sizably from two and three years earlier. This will keep EU import requirements of rapeseed and canola very high also in the 2012/13 season.

Our current tentative production estimate for Ukraine is 1.13 MMT, a five-year low, mainly reflecting very dry conditions this autumn and winter, a further decline in winter crop plantings, and larger than usual abandonment. Contrary to earlier expectations (three and four years ago) of a further medium- to longer-term growth, actual rapeseed production has declined continuously from the peak of 2.9 MMT achieved in the summer of 2008. Winter rapeseed did not develop as favorably as expected and was decimated by unfavorable weather conditions during the past three years and again so far this winter. Instead, farmers in Ukraine expanded plantings of sunflowers and soybeans as well as grains. The net result is going to be that Ukraine’s rapeseed export supplies will again be very low in the 2012/13 season. Figure 1

 

The global market dependence on Canadian canola will increase in the 2012/13 season

This should create favorable prices and selling opportunities for Canadian farmers, also considering the impact of the South American soybean production losses resulting from insufficient rainfall in key phases of crop development.

A further increase in Canadian canola plantings and production will be required in 2012, considering the reduced stocks at the end of this season in Europe, Canada, and elsewhere as well as the again relatively poor production prospects in Europe and the Commonwealth of Independent States countries.

In our current estimate we expect an increase in Canadian canola plantings by 3–4% to a new high of 7.9 million ha compared with 7.6 million ha last year and 6.8 million ha in the spring of 2010. Canola experienced a phenomenal development in Canada with the area virtually doubling within 10 years from 3.9 million ha in the spring of 2002. In contrast, Canadian plantings of grains, primarily of barley and wheat, declined sharply during the past 10 years. Also, the flaxseed area plummeted by more than 50% from 0.75 million ha planted 10 years ago.

Global supply outlook for 2012/13

According to our current tentative projections, we peg world production of rapeseed and canola at 61.5 MMT in 2012/13, representing a moderate recovery by 2.0 MMT from the current season. This is on the assumption of favorable weather conditions and of increased plantings made in Canada in April/May 2012 and in India in November 2012. Table 1

But owing to the comparatively small world stocks at the start of the world crop season 2012/13, the growth in world supplies of rapeseed and canola will be only marginal at 0.7 MMT or 1%, according to our current forecast.

Impacts on oil.

Our early forecast points to only a limited potential for a recovery in global crushings of rapeseed and canola in July/June 2012/13. Our current preliminary crush estimate of 58.5 MMT will be only marginally 1% higher than in the current season. This will not be enough to create a more comfortable global supply outlook for rapeseed oil and canola oil in the 2012/13 season.

On the contrary, prospects of reduced global stocks of rapeseed oil and canola oil at the end of this season will probably be just offset by a slight recovery in oil output, keeping world supplies almost unchanged at the reduced level of the current season. As a result, rapeseed and canola oils are likely to be priced comparatively firm and at a premium to soybean oil for most of the 2012/13 season. Current prospects are that higher demand from the biodiesel industries of Europe and North America can be satisfied only if demand reductions are achieved in the food industry.

Thomas Mielke is executive director of ISTA Mielke, GmbH of Hamburg, Germany oilworld.de, an independent source of global market research and analysis. He can be contacted at thomas.mielke@oilworld.de.