Rapeseed prices, which fell back in Paris from their highest in nearly two years, may be poised to resume their rally, lifted by a European shortage will mean going as far as Australia to fulfil demand.

The European Union's own 2010-11 rapeseed crop – estimated by Oil World analysts this week at 19.92m tonnes, down 1.7m tonnes year on year – is broadly expected to fall short of demand.

However, Ukraine, which the EU typically relies on to top up supplies, is itself seeing a slide in output after a harsh winter, with UkrAgroConsult pegging the crop down 18.7% at 1.5m tonnes.

Furthermore, the EU faces competition from alternative buyers, such as Pakistan, where the Pakistan Edible Oil Refiners Association expected imports to surge by 20% this year.

'More room to rally' 

"The production in the Black Sea region is exceptionally important to the EU crushers," said Jonathan Lane, trading manager at UK merchant Gleadell.

"But even with this seed there still isn't enough and we will ultimately need Australian seed too."

However, with imports from Australia still "some way" mor expensive than local supplies, and little prospect of their prices falling, European rapeseed prices had scope to rise yet before losing competitiveness.

"In short we believe that… this market still has more room to rally," Mr Lane said.

He was echoed by a London trader who told Agrimoney.com that the rapeseed market, "had far better fundamental" reasons to rise than wheat, and looked likely to keep appreciating.

Biofuel smallprint 

It is not only the EU crop, the world's biggest, that faces a decline, but that in second-ranked producer Canada too, where a wet spring prevents farmers completing sowings.

Canada's production this year will fall by 1.8m tonnes to 10m tonnes, Oil World believes.

Meanwhile, European demand is being stimulated by Germany's introduction of rules compelling biodiesel plants to use only raw materials deemed to be from sustainable sources.

"Many foreign producers are unable to provide such proof. As a result, demand for – and hence the price of – certified locally grown rapeseed will increase," KTG Agrar said

The German-based farm operator announced earlier this week  that it had sold its rapeseed for 30% more than last year because of the strong market prices.

UK results 

Within the EU, the UK was likely to have 300,000-350,000 tonnes to export, to judge by the results from the first half of the harvest, Mr Lane said.

"At this stage our best estimate would be [a yield of] around 1.5 tonnes per acre, suggesting a crop of 2.1m tonnes," he said. Last year's harvest was a little under 2m tonnes.

Rapeseed, which closed on Thursday at its highest since September 2008, stood 1.3% lower at E380.25 a tonne in afternoon trade in Paris.