German Drought Threat To Biodiesel Producers

Michael Hogan PlanetArk 30 May 11;

Drought will sharply cut the rapeseed harvest in Germany, which produces about a quarter of the European Union's crop, and is likely to force biodiesel producers to cut output.

About 75 percent of Germany's rapeseed is used by its biodiesel industry, the largest in the EU.

"The biodiesel producers must seek to find alternative supplies or may face the prospect of cutting their production," said Claus Keller of German commodity analysts FO Licht.

Drought in the past four weeks has caused huge damage to Germany's 2011 rapeseed crop which may slump 22.6 percent or 1.3 million tonnes on the year to 4.4 million tonnes.

"I think a German rapeseed harvest of this size could cause problems for biodiesel producers," said Keller.

A 4.4 million tonnes rapeseed crop would produce about 1.7 million tonnes of rapeseed oil, he said.

"German biodiesel production requires at least 2 million tonnes of rapeseed oil in the 2011 calendar year," Keller said. "This supply will not be present."

Germany' biodiesel industry has some 5 million tonnes of annual capacity, the largest producer in the EU's 21.9 million tonne biodiesel sector, according to the EU biodiesel association EBB. German biodiesel output is largely used for blending with fossil fuels to protect the environment.

Germany generally produces around a quarter of the EU's annual rapeseed crop of about 20 million tonnes. There is concern about drought hitting rapeseed in other EU countries but so far major irreparable crop damage has only been reported in Germany.

Another problem is that Germany has imposed EU regulations ahead of other most other member states which compel raw materials for biofuels to be certified as coming from sustainable agriculture, a move aimed at protecting tropical rain forests.

"The certification will make it very difficult in Germany," said Thomas Mielke, head of global oilseeds analysts Oil World. "It will be a real headache, especially for the biodiesel industry."

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Mielke said that no single alternative supply source for consumers seeking to replace lost German rapeseed was currently visible.

"There will certainly have to be larger imports of oils and of biodiesel," said Mielke.

Oil World expects a rise in EU rapeseed imports in the next year from Ukraine, Russia and Kazakhstan. Canola/rapeseed could also be bought from Australia and Canada.

There will also be some demand shift to soyoil from South American producers such as Argentina and palm oil from Malaysia and Argentina.

German rapeseed oil consumers are also likely to buy as much as possible elsewhere in the EU, tightening the bloc's supply balance, traders said.

"The German crop problem is likely to become an EU issue as it is likely that German consumers will buy as many supplies as possible from other EU countries," one oilseeds trader said. "Ukraine, Argentina, and the palm oil exporters such as Malaysia and Indonesia are likely to get big new business from Europe in coming months."

Traders are now anxiously watching for signs of rapeseed crop damage in other EU producers.

"If drought also hits crops in the EU's second largest rapeseed producer France this could cause pretty serious rapeseed oil supply problems," Keller said. "Rising rapeseed prices are to be expected and they are rising already."

Euronext European benchmark rapeseed futures have risen about five percent in the last week.

"Rapeseed has suffered damage in Germany and I think we will see a supply shortage in Europe, said Siegfried Hofreiter, head of Germany's largest farm company KTG Agrar. "For rapeseed we will see a seller's market in the new year."

Germany's leading biodiesel producers include Verbio, Biopetrol and U.S. agribusiness giant Cargill.

(Editing by William Hardy)