Market conditions remain favourable for UK oilseed rape growers according to Owen Cligg, trading manager for United Oilseeds, who believes that the immediate future for oilseed rape prices remains strong despite inevitable volatility.
Owen Cligg, trading manager for United Oilseeds
““A number of key factors are working in favour of British OSR growers,” Mr Cligg explained at a recent conference hosted by United Oilseeds in conjunction with the HGCA. “Low stocks of corn and soya, particularly in the US following last year’s poor harvest season, have seen demand for oilseed rape remain strong. In addition, lower 2012 anticipated EU harvest production – as a result of poor germination and high levels of winter kill in many Eastern European countries – has accentuated the demand for oilseed rape from the UK market, with United Oilseeds currently trading crops at £330-£340/tonne for prompt harvest movement.”
Mr Cligg also believes that South American weather patterns are working in favour of British growers. “Farming in the UK operates on a truly global scale. Wet weather in Northern Brazil and dry weather in Argentina and Southern Brazil mean that cropping predictions from that part of the world are changing on an almost daily basis. Rising crude oil prices as a result of continuing instability in Nigeria and Iran are also having a positive impact on UK vegetable oil prices.”
One of the key factors influencing vegetable oil prices is an increasing demand for sustainable oil for use within the biofuels industry. “Energy biofuels currently account for 11% of global demand for vegetable oils,” Mr Cligg continues. “This sector is growing rapidly, particularly in Europe where EU biofuel mandates have given rise to an increase in demand for crops of oilseed rape that are certified as sustainable.
“The UK is expecting to export around 650,000 tonnes of oilseed rape in the current season, a significant proportion of which is destined for the EU biofuel industry. This figure is likely to grow as both supply and demand continue to rise – particularly in Germany where there is an abundance of spare biofuel production capacity – and therefore points towards a rosy future for UK growers.”
However, Mr Cligg warns that the oilseed rape market will be tinged by an element of price volatility. “Overall the market is likely to remain strong, but we will continue to see some price fluctuations,” he adds. “High prices often ration demand and will always encourage extra production. This can have a significant effect on the supply versus demand equation.”
Mr Cligg also warns that prices could stagnate if the world slips back into recession. “A global slump would result in less market speculation and fewer crop purchases on the futures market. Similarly, the herd mentality of commodity traders where one trader sells and others follow suit could lead to significant market swings. United Oilseeds steers away from this line of attack and will only sell crops on behalf of our members when market conditions are right.
“Prices can’t continue to rise forever,” Mr Cligg continues. “If vegetable oil becomes too expensive, it will be economically untenable for processors within the biodiesel industry to meet their mandate requirements. However, at present prices are remaining firm and should do so for the foreseeable future. Oilseed crushers and processors are nervous about running at a low capacity and are willing to pay a premium to secure an ongoing supply. This is working to the advantage of UK growers who are responding by treating crops of oilseed rape as commercial crops rather than the break crop that the plant has historically been regarded.”
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