Understanding the OSR Market
As harvest approaches, discussions are increasingly centred around OSR. With OSR values currently at half of their level a year ago, an expansion in OSR area and a lower than average commitment to forward contracts, it may be the right time to devise a strategic plan. While global trends point to lower rapeseed prices, a closer examination of the domestic market reveals a story that is yet to be fully written. The pricing and dynamics of this market are influenced by global demand and supply dynamics, weather conditions, government policies, and market speculation.
While global trends indicate lower rapeseed prices, it is essential to look closer to home to the story of domestic oilseed prices. Europe’s planted OSR area has increased by 7%. Coupled with the predicted surplus to be carried over, these factors put downward pressure on OSR prices. The UK OSR estimate is approximately 30,000t above the five-year average. This suggests that the domestic market may differ from the global trends, and there could be unique dynamics at play.
The OSR market has witnessed an oversupply of rapeseed due to increased area and favourable weather conditions in major producing regions. The global OSR market has been affected by factors such as trade disputes, changes in import regulations, and competition from alternative oilseeds. On 31st March the UK joined the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), a free trade agreement between 11 nations. One of the widely criticized implications of joining the CPTPP was the removal of the longstanding 12% tariff applied to the UK’s palm oil imports. Traditionally, palm oil gives the vegetable oil market a price floor due to it being the cheapest to produce.
Extension of the Black Sea grain corridor highlights the influence of government policies on the grain market, providing an opportunity for increased exports. This will be reviewed in 60 days time. A suspension of the corridor in July would add some bullish sentiment.
Weather conditions in the US are currently favourable. Improved crush margins, and advanced US soybean plantings are affecting CBOT soybean prices. Plus the impact of market speculation and weak demand, influenced by global demand and supply dynamics. Adverse weather in North Dakota highlights the vulnerability of crop production to weather conditions. Attention must also be paid to South America where issues are being faced with Soybean production in Argentina but positive numbers coming out of Brazil; will Brazil make up for Aregentina’s shortfall?
Recently a positive US stock market rally driven by progress in government policies, specifically the nearing an agreement to raise the debt ceiling, indicates the influence of government policies on financial markets, therefore lending support to the market. Crude oil prices have rallied due to higher usage and reduced stocks, while vegetable oils face challenges due to the decline in agricultural commodities.
What is the outlook? While short-term market dynamics indicate price challenges, it is essential to consider the long-term outlook for the OSR market. Factors such as changing global demand, government policies, and technological advancements can influence the future profitability and viability of OSR production.
Given the uncertainties and challenges faced by the OSR market, it is vital to stay informed, adapt to market dynamics, and make informed decisions. It may be prudent for farmers to start considering '23 OSR storage contracts. By locking in storage arrangements, they can secure favourable terms and potentially mitigate the impact of price fluctuations. In coming weeks we will be looking at multiple pricing and storage options for OSR. If you are unsure on how to proceed with trading your OSR please get in touch with myself or another member of the team and we will be pleased to discuss the various options available.
Rachel Fenwick