14th June 2006, BRUSSELS: The European Union oilseed situation is largely influenced by the demand for biodiesel. Despite the two last years record harvests of rapeseed the demand for rapeseed oil is still higher than the supply. This has caused turbulence on the market and crushers are now changing the plants from soybeans to rapeseed or multi-seed crushing plants, according to a U.S. Department of Agriculture attache report posted on the Foreign Agricultural Services Web site.
High price of rapeseed oil in the EU has effects on the food sector. The food sector utilizes increasing amounts of sunflower oil, which used to be the most expensive oil in the EU but is now one of the cheapest and currently about $150/ton cheaper than rapeseed oil.
Despite press reports that have cited deforestation in Malaysia and Indonesia as an affect of Palm oil production, the importation and use of Palm oil continues to grow.
Data in this report is based on FAS analysts in the EU and is not official USDA data.
HA = Hectares; MT = Metric ton; Benelux = Belgium, the Netherlands and Luxembourg; MS = Member State; MY = Marketing Year.
The EU local marketing years used in this report are: Oct -Sep: Soybean complex, Sunflower complex, Cottonseed complex; Peanut complex: July-June; Rapeseed complex, Olive Oil: Jan - Dec; Copra complex, Palm Kernel complex, Palm Oil, Fish Meal.
Executive Summary
The oilseeds situation is currently largely influenced by the demand for biodiesel in the EU. The demand for rapeseed, which is the most important oilseed in the EU, has encouraged expansion of rapeseed area. This increase, together with favorable weather conditions, has lead to record rapeseed harvests over the last two years. However, despite these record harvests, demand for rapeseed has exceeded production leading to increased rapeseed imports and declining exports.
Because of continued low crush margins for soybeans relative to rapeseed, more and more crushers are turning from soybeans to multi-seed or rapeseed crushing. However there is a difference between Northern and Southern Europe. In Northern Europe where rapeseed is grown, there is an increased focus on rapeseed crush and consumption. In Southern Europe, mainly Italy, Spain and Portugal, an increase in soybean use is expected. This increase reflects a growing interest in soy-based biodiesel in this region and plans for expanding crushing and processing facilities.
In the EU, about 80 percent of biodiesel is produced from rapeseed oil. It is not possible to use pure soybean oil to produce biodiesel in the EU. The CEN 14214 standard for biofuels in the EU limits the use of soyoil to a 20-25 percent blend as measured by the Iodine value. However Spain has adopted a higher Iodine value that allows for the use of pure soyoil as fuel. The CEN standards will be reviewed during 2006.
The high price of rapeseed oil in the EU has implications in the food sector. The food sector is expected to utilize increasing amounts of sunflower oil over the next few years. Sunflower oil was one of the most expensive oils in the EU while rapeseed oil used to be one of the cheapest oil. However, this relationship has been altered by rising biodiesel demand such that sunflowerseed oil is now much cheaper than rapeseed oil, currently trading about $150/ton less than rapeseed oil.
Because of this price difference and since sunflowerseed oil is regarded to be a high quality oil, demand for sunflower oil is increasing and imports to the EU are growing.
EU soybean production is expected to increase in 2005/06 and 2006/07. This increase is mainly caused by the reform of the EU sugar sector encouraging Italian farmers to shift from sugar beet to soybean production. In other EU Member States, little change in soybean production levels is anticipated.
During 2006/2007, EU soybean imports are expected to recover from a reduction experienced during 2005/06. This reduction is a consequence of different import trends between Northern Europe and Southern Europe, caused by the increased use of rapeseed in Northern Europe. Imports to the Benelux, Germany, the UK and France are expected to decline or at least stabilize due to increased domestic rapeseed crushing. In Italy, Spain and Portugal, imports are expected to increase, primarily as a result of investments in biodiesel plants, which are planned to include crushing facilities.
A general trend in the Northern EU is that soybean-crushing plants are being converted to multi-seed crushing plants capable of crushing rapeseed. In Germany, most of this conversion has already taken place.
EU imports of soybeans from the U.S. are expected to decline during 2005/06. During the first five months of 2005/06, Benelux, Germany, France and the UK reduced imports from the U.S. One of the reasons is that soybeans from Argentina and Brazil generally have a higher protein and oil content, and a lower foreign matter. Another reason for increased imports from Brazil is that European crushers prefer non-GM soybeans and those are more available in Brazil. Also, high U.S. domestic prices and the heavy hurricane season had reportedly a negative effect on imports from the U.S.
In 2006/07, EU crushers believe that imports of U.S. soybeans will only decline marginally as high stocks of soybeans have remained in the U.S. and a good U.S. crop is expected in 2006.
In addition, supply from South America could stagnate as farmers face financial difficulties that could impact plantings in 2006.
In March 2006, Greenpeace protested against the use of Brazilian soybeans in the ports of Amsterdam and Ghent due to their reported negative impact on the rain forests. However, these protests are believed to have no effect on Brazilian imports. Sector organizations are, however, reportedly working on measures to market Brazilian beans as more sustainable.
EU soybean meal imports are expected to increase marginally during 2005/06 and 2006/07. Imports of soymeal are impacted by the factors cited earlier with regards to decreased crush. In the Benelux and Germany, imports will increase as a result of lower domestic production, mainly caused by the switch to rapeseed crushing. This switch is caused by the rising demand for rapeseed oil for the biofuels sector and the relative decline in soybean crush margins. Meanwhile in the Iberian Peninsula, imports are expected to decline due to increased domestic soybean crushing.
Due to the strong competition with South American soybean meal, Benelux crushers reportedly have more difficulty in marketing their product. Crushers report that the revenues made on oil are increasingly getting more important relative to the revenues made on meal. The third biggest source, following Argentina and Brazil, of soymeal for the EU is Norway. Norway imports GMO-free soybeans from Brazil, crushes them and then exports soyoil and some of the soymeal to the EU. Norway has strict limitations on imports of agricultural biotechnology products, stricter than those in the EU. Before 1996 when these limitations went into force, the US supplied 60-80 percent of the Norwegian market.
During 2005/06 and 2006/07, EU soybean meal consumption is anticipated to increase marginally. In the Benelux, feed use of soybean meal has been about 5 percent in pig and cattle feed, and 10 percent in poultry feed during 2005/06. In Western Europe, rapeseed meal is expected to compete increasingly with soybean meal because of increased availability and competitive price. Soybean meal could, however, benefit from the expected limited global wheat supply situation in 2006/07. Tight supplies of tapioca, which is normally used in combination with soybean meal, could complicate matters.
EU soybean meal consumption is expected to increase during 2005/06 and 2006/07. This is mainly a result of increased consumption in Poland, caused by increasing demand for feed in response to increasing livestock production. Both poultry and swine production increased significantly in 2005 and are expected to increase further. In Hungary, soybean meal consumption is reportedly limited as intra-EU trade has reached a maximum due to the logistical limits of the Danube. Before accession, Hungary was supplied with soybean meal from Brazil.
Avian influenza (AI) outbreaks only affected soybean meal consumption temporarily. In Germany and the Benelux countries, higher pork production balanced lower poultry meat production. Only in Italy, was soybean consumption negatively affected by the AI scare. In France, soybean meal consumption is anticipated to decline as an effect of the declining compound feed production, due to the shrinking animal numbers.
EU soybean oil imports are expected to increase in 2005/06 and 2006/07 as a result of increased use in biodiesel, and stagnant domestic production, particularly in Western Europe. Increased use of soybean oil in biodiesel is anticipated in Germany, Spain and Portugal. Germany will also increase soybean oil imports for use as pure vegetable oil for fuel use in trucks. The main suppliers of soybean oil to the EU are Brazil, Norway and Argentina. The soyoil imported from Norway originates from Brazilian beans.
As a consequence of the lower availability of soybean oil, EU exports are expected to decline. It is even anticipated that the EU will be a net importer of soybean oil during 2005/06
During 2005/06, food use of soybean oil is expected to peak due to the favorable price relation with rapeseed oil. During the next season, however, food use is expected to decline due to partial replacement by sunflower seed oil and tropical oils, in particular palm oil.
