Poor crop prospects

    Oilseeds market

     

    The oilseeds market is complex

    • The relative importance of South America has changed over the past 10 years.  Brazil is now the largest exporter of soybean, but was relatively insignificant as recently as 10 years ago.
    • The global oilseeds harvest period is more evenly spread throughout the year than the cereal harvest, with the major exporting countries harvesting approximately six months apart (see diagram 1).
    • The two largest soybean exporters, Brazil and the USA, can adjust planted areas with the knowledge of the other’s likely harvest outcome, correcting any supply and demand imbalance within the marketing year.
    • A range of crops supply the oilseed market, each with a different ratio of meal to oil and each producing oil with different characteristics and meal with different protein contents and protein types.
    • While cereals supply more than one end use, generally each grain tends to go to a single market.  In contrast, each individual oilseed supplies vegetable oil and protein meal.  The vegetable oil and protein markets operate, at least in part, independently, so for example, the price of vegetable oil may rise while protein meal may decline.
    • Within the past 10 years, the removal of set aside contracts, loss of non-food contracts and an improvement in storage has meant that the pressure to sell before 1 January has reduced.
    • Palm oil, a perennial crop, makes a major contribution to the supply of vegetable oil but its supply response to a change in market conditions is slower than for annual crops.
      Growth in bioethanol production has resulted in a new supply of high protein meal.

    What has happened?

    • In 2012, poor South American crop yields in the Spring followed by one of the worst droughts ever in the USA, which looked likely to decimate the US soya crop, meant that supplies were tight and the price rose to almost unprecedented levels in 2012.
    • High prices provided an incentive to Brazilian and Argentine growers to increase their respective areas (both by over 7%) and yields in 2013 sprung back not just to trend but over trend and the world was awash with soybean, and prices fell.
    • The US weather this year means that 2013 soybean yields may not be as good as initially expected but the impact is likely to be small.
    • Protein meal price has been increasing relative to the vegetable oil price.  This has a greater impact on oilseed rape than soybean because of its higher oil content (about 40% rapeseed and 20% soybean).
    • Production at Vivergo and Ensus will be a negative influence for meal prices but the impact will probably be small because production of distillers’ grains should largely replace soy meal imports.

    Major Soybean Exporters

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    Relative price of Vegetable Oil and Protein Meal ($ per tonne of Soybean)

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    Message

    • Oilseed prices in the Autumn are not an indication of supply or price over the year.
    • Storage needs to be flexible with an ability to sell mid-season.
    • Focus needs to be as much on South America as it is on the USA.
     
     

    Key contacts

    Andrew Wraith

    Andrew Wraith

    Director
    Food & Farming

    Savills Lincoln

    +44 (0) 1522 508 973

    +44 (0) 1522 508 973