El Niño Roils Global Oilseed Markets: Rapeseed Oil Leads Diverging Vegetable Oil Complex

After a prolonged period of quiet trading, rapeseed oil futures have broken out with a sharp rally. On June 4, the main OI2609 contract continued its strong performance, opening higher to surpass the 10,300 yuan/ton level and hitting an intraday high of 10,416 yuan/ton. By the midday close, it had retreated slightly to 10,268 yuan/ton, up 1.09%. In the previous trading session, the contract had surged 3.94%.

Output Cut Expectations Drive the Rally

The core driver of this price rally points directly to a "weather crisis" affecting the world's major rapeseed-producing regions.

According to Zhang Linjing, a vegetable oils analyst at Chuanyuan Futures, three key producing regions have been hit by adverse weather:

• European Union: Drought and frost have plagued the region, leading to downward revisions in yield estimates.
• Canada: Above-average spring rainfall has severely delayed planting in core production areas such as Saskatchewan. The current planting rate stands at only 38%, far below the 83% recorded at the same time last year.
• Australia: Under the influence of El Niño and a positive Indian Ocean Dipole, Australia's new-crop rapeseed area is expected to shrink by 6%. Coupled with persistently low rainfall and higher temperatures in Western Australia and eastern growing areas, authoritative agencies forecast a sharp production drop of nearly 20%.

Chen Chen, an analyst at Nanhua Futures, noted that while potential production shortfalls in the EU and Canada could narrow if weather improves, the scope for weather-driven speculation in Australia remains significant. This "forward pricing" of tighter global oilseed supplies has provided the confidence for funds to push prices higher.

Divergent Performance Across Vegetable Oils

Since the beginning of this year, the vegetable oils complex has shown clear divergences. As of June 4, rapeseed oil led the pack with a 13.33% gain in its main contract, closely followed by palm oil with a 13.27% rise, while Soybean Oil gained only 8.66%.

Industry analysts believe rapeseed oil commands the highest weather risk premium. Palm oil, though pressured by production increases and inventory accumulation in producing countries, remains supported by biodiesel policies. Soybean Oil, on the other hand, is amply supplied due to large arrivals of South American soybeans, with valuations at the lower end of the range, leaving it largely in a "follower" role.

Outlook: Beware Expectation Gaps, Watch Palm Oil

Despite the surge in rapeseed oil, analysts advise investors to remain rational. Chen Chen noted that domestic rapeseed oil inventories are currently ample, with recent procurement volumes rising sharply, meaning spot supplies are not tight. Hedging pressure may limit further upside. A fresh wave of price increases would likely require sustained planting delays in Canada or worsening drought in Australia that genuinely threaten supply by the end of the third quarter.

In contrast, palm oil is viewed more favorably by institutions for its medium-to-long-term value. The World Meteorological Organization (WMO) has warned of an 80% probability of El Niño occurring between June and August this year, potentially reaching a strong intensity. Historical patterns indicate that El Niño impacts palm oil production with a lag of 10 to 15 months, and has often led to price increases exceeding 40%. Combined with the implementation of biodiesel policies such as Indonesia's B50 and Malaysia's B15, the price center for palm oil is expected to shift higher in the second half of the year.

Addressing a key investor question — whether rapeseed meal will follow rapeseed oil higher — Zhang Linjing gave a clear negative answer. Domestic rapeseed meal supply is loose, and its price trend remains constrained by weak soybean meal, leaving it with little independent upward momentum. She advised against blindly chasing long positions.

Summary

In summary, the rapeseed oil market is currently caught in a tug-of-war between "strong expectations" and "weak reality." In the near term, close attention should be paid to weather developments and planting data in Canada and Australia. Should weather speculation cool, the risk of a sharp pullback from current high levels cannot be ignored. For the broader vegetable oils complex, under the overarching backdrop of El Niño, building long positions in forward Palm Oil contracts on dips may offer a more attractive risk-reward strategy.