European reports indicate rapeseed prices are caught between declining crop prospects in the European Union in 2019 and the current plunge in canola futures with those issues reaching contract lows.
The International Grains Council recently estimated European rapeseed production to fall by 6% to 18.4 million metric tons in 2019, which would be the second consecutive drop in annual production and compares to USDA's 5-year average of 21.771 mmt. Social media posts on May 2 indicate the problem may even be more severe with Oil World estimating EU rapeseed production to fall to 18 mmt or lower, representing 13-year lows.
Rapeseed for August delivery reached its highest level in 13 weeks in Monday's trade and has fallen 3 euros since to EUR366.25, although remains 3.6% higher than the most recent low reached on March 5. The August/November futures spread has narrowed to minus EUR1.75, its narrowest trade in 2019, a sign of a growing bullish sentiment on the part of commercial traders.
The attached chart shows the trend in the continuous/active canola/rapeseed spread, measured in U.S. dollars. This spread has sharply corrected from a weekly close of minus $43.73/mt USD as of the week ended Feb. 19, to the current level close to minus $89/mt, the weakest spread in just over five years(rapeseed over canola). So far this crop year, this spread has averaged minus $58.57/mt, which compares to an average of minus $30.64/mt in 2017-18 and the average of $45.93/mt over the past five crop years.
Talks of potential frost in northern growing areas of the E.U. remain on the radar and could lead to rapeseed adding further strength relative to canola. USDA will release its first production estimates for 2019-20 on May 10.
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