As the new-crop November canola contract consolidates in sideways trade this week while holding near contract highs and new-crop futures spreads (November/January) point to a neutral view of new-crop fundamentals, what is being described as a "fragile" situation is taking shape in Europe's rapeseed market. Bloomberg's Friday piece titled "Europe's Fields of Yellow Flowers May Fade with Diesel" may give reason for concern for global markets.
A combination of cheap biodiesel from Argentina along with a European Union court directive to eliminate anti-dumping duties on imports from Indonesia could be a one-two blow to Europe's rapeseed market. Biodiesel plants in Europe are shutting down or cutting production as a result, a market that is suggested to normally absorb two-thirds of rapeseed oil production. As well, Bloomberg reports that the short crop of soybeans in Argentina has made it increasingly profitable for Europeans to crush domestic beans rather than canola, adding to the pressure on the market.
New-crop August rapeseed futures on the Paris market ended higher his week although trade has remained in a narrow EUR16/mt range over the past 16 weeks, holding near contract lows. The August/November spread has weakened for four consecutive weeks to minus EUR6/mt, suggesting an increasingly bearish view of fundamentals held by commercial traders, ahead of new-crop harvest. Bloomberg reports a farm group suggesting that rapeseed demand could fall by 20% to 30% further that could lead to a 33% decline in price.
Each week, the European Commission releases a weekly snapshot of global oilseed values in U.S. dollars, utilized to create the attached graphic. As of April 25, the spread between rapeseed at the Port of Rouen France and Canadian canola was reported at $47.08/mt USD (canola over rapeseed), the widest spread favouring canola seen since July 2014, almost four years. As seen on the attached graphic, this spread has peaked in the month of June in 2015, 2016 and 2017, at $15.92/mt, $20.82/mt and $27.23/mt, respectively, all levels significantly below current levels.
Next week's USDA estimates may provide further insight into expected demand in 2018/19 and how this may affect global markets. A troubling sign for both rapeseed and canola would be a breach of EUR340.50 on the August chart, a level that has been reached three times in the past seven weeks on the weekly chart.
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