As Canola Slides, Its Crop Rival in Europe Is Faring Much Better
(Bloomberg) -- As oilseed prices slump from the Canadian prairies to Brazilian ports, Europe’s rapeseed crop is holding one of the market’s lone rallies.
The European Union’s crop -- known for its bright yellow flowers this time of year -- was planted in dusty soils last fall, curbing acreage. Conditions have improved since then, but some areas are still too dry, and the EU has cut its production outlook to 19.2 million tons, the lowest in at least five years.
The shrinking harvest has supported futures in Paris in recent months, despite the gloom in other oilseed markets. Prices for canola, one of Canada’s top crops, are near a four-year low as China cancels purchases amid a diplomatic feud. U.S. soy futures are also sinking as global supply swells, a pig virus ravaging China’s herds threatens feed demand and a trade spat drags on.
The EU’s crop forecast is probably at the high end of estimates, said Owen Cligg, trading manager at United Oilseeds, adding that in the U.K. the harvest could fall 10% due to pests and drought. “In Europe, production could well be down below 18 million tons,” he said by phone.
Even after retreating recently, rapeseed futures are still up about 3% from a March low and have outperformed most grains and oilseed commodities this year.
While Canada will have an abundance of cheap canola, that’s unlikely to spur a flood of sales to the EU, which has restrictions on genetically-modified crops and requires biofuels to meet certain sustainability requirements.
There could be more imports from Ukraine, though, which is poised for a big crop, said Ben Bodart, director at farm adviser CRM AgriCommodities in Newmarket, England. Ukrainian shippers may also be eager to speed up sales ahead of expected changes to tax refunds for oilseed exports.
For now, traders are likely to keep an eye on political developments outside of Europe as well as the state of the bloc’s crops. Soil moisture remains below normal in parts of France and Germany, according to U.K.-based ADM Agriculture Ltd.
“The world environment is bearish,” said Hemeline Macret, oilseed analyst at French advisory Strategie Grains. “If you look at the soybean market and canola market, stocks are huge. But in Europe, the situation is very tight, so European prices should stay much higher than world prices.”
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