Markets

Canola outlook bright as markets call for Australian seed, oil

Liz Wells, April 27, 2020

Planting canola at Grass Patch near Esperance in WA. Photo: Ash Bowman

FARMERS across southern Australia are tearing into their canola planting programs amid a buoyant market which is prompting them to forward sell their first tranche of new crop.

While logistics, currency and commodity markets continue to juggle changes in the economic landscape brought about by COVID-19, demand for canola oil continues to be strong in domestic and export markets, and seed is also in demand.

Forward sales

Australian canola appears to be in strong demand as its stocks run down, and trading action moves into new-crop slots.

“We’ve seen prices around $600 a tonne depot for non-GM seed, and that’s where we’ve been seeing farmer interest in selling,” Riverina Oils trading manager and Australian Oilseeds Federation treasurer Lachlan Herbert said.

“We’re seeing a bit more forward selling from growers than normal at 10 to 20 per cent of the crop for delivery eight to 15 months out.”

Mr Herbert said the recent drop in the Australian dollar, coupled with the impact of dry weather in parts of Europe on its maturing rapeseed crop, were supporting canola prices in Europe, where stocks are already tight.

“The curved ball is biodiesel demand, which is falling in line with diesel consumption generally because of COVID,” he said.

Europe’s biodiesel sector is Australia’s biggest market for canola seed, and its near-term commitment to producing fuel with stringent sustainability credentials is likely to be tested as crude oil trades at record lows in forward markets.

Demand from China

Demand for Australian canola continues to be strong in response to an upswing in home cooking and a plunge in commercial cooking in China as caused by the COVID-19 lockdown.

“What we’re not selling into restaurants, pubs and clubs in Australia, we’re putting into export markets and into bottles to sell here, so overall we haven’t seen a drop in demand.”

COVID-19 has reduced production of palm oil in Asia due to lockdowns in areas of Malaysia, and both Mr Herbert and MSM Milling director Pete Mac Smith said this had increased export demand for Australian canola oil.

“The lower Australian dollar, combined with the partial shutdown of some palm oil refineries, especially in Malaysia, has created more demand for our product,” Mr Mac Smith said.

MSM Milling’s key retail brand in Australia is auzure, and Mr Mac Smith said it already had some market share in China and Taiwan prior to COVID-19.

“It was growing, but it’s exploded in the past couple of months with the increase in home cooking.”

MSM Milling crushes 110,000t of canola per year, and exports up to 30pc of its oil.

In favour in NSW

MSM Milling is located at Manildra in central west NSW, where recent and regular heavy rains have the region well on the road to drought recovery.

“It’s really exciting to see the country bounce back.

“Let’s hope all farmers have an absolutely cracking year in 2020.”

Mr Herbert, who is based in Wagga Wagga, said indications were that the NSW canola area would be up solidly on drought-reduced plantings of recent years.

“There’s certainly an uptick in canola planting for NSW,” he said.

“Traditional canola areas won’t have a lot of change, but those areas that don’t usually grow much canola and have had good rain have the crop in the ground.”

 

VIDEO: Kerin Poll Merino in Central NSW is using dual-purpose canola as an important source of sheep fodder. Credit: Nigel Kerin

Such areas include the outer slopes and plains of central west and north west NSW, where sheep have made a comeback in mixed-farming systems.

Sheep, lamb and wool prices are all strong, and canola as a grazing or hay option, has been a valuable resource for farmers across southern Australia during the drought.

Strong prices now on offer for canola have made it even more attractive as a broadleaf break crop to grow in cereal-cropping rotations.

“A feature of this year will be the volume of grazing crops that are around because of the livestock job.”

Sowing nears halfway

Dual-purpose canola is well-suited to early sowing, and a whack of it is already established following rain since January which has brought 150-300 millimetres of rain to most of the NSW and Victorian grainbelt.

Victorian farmers have largely finished planting their canola, and NSW plantings were around two-thirds complete ahead of the usual Anzac Day start of winter-crop sowing.

Plenty of canola has been sown in South Australia and is germinating on 10-40 millimetres of rain in the past week.

In Western Australia, some canola area has been planted dry, and growers are waiting for rain to appear on the forecast to complete their program.

Grain Industry Association of WA (GIWA) Oilseeds Council chair Michael Lamond said WA growers were set to plant an increased area of canola this year based on a promising start to the season and positive price signals.

“The global stocks-to-use ratio is low, and has been in decline for the past six years,” he said.

“That means that any shock in the system will get a quicker response in price.

“We have subsoil moisture, particularly in low to medium-rainfall areas, and the fundamental outlook for planting is way better than it has been for the past year.

“If we get a break between now and the first week in May, there’ll be a big area of canola go in.”

Mr Lamond said WA’s canola area had fallen from 1.6 million hectares (Mha) in 2016 to around 1Mha last year, largely because of dry conditions in the planting window, and 1.25Mha seemed likely for this year.

“It still could vary from 1Mha to 1.3Mha, depending on rain or not in the next three weeks.”

New-crop seen at 2.8-3.7Mt

Sydney-based brokerage and consultancy IKON Commodities last Monday lifted its forecast for new-crop Australian canola production by 160,000t from last month to 3.7Mt.

Lachstock Consulting’s estimate sits at 2.78Mt.

These numbers compare with last year’s national crop estimated by ABARES at 2.3Mt from 1.8Mha, with both numbers showing the effects of drought in NSW and a generally dry finish to the growing season in most districts apart from Victoria’s Wimmera region and south-west.

The Australian Oilseeds Federation (AOF) and ABARES are yet to release their new-crop estimates by state for Australian canola production.

As demonstrated by Table 1, a nasty spring robbed last year’s crop of a chunk of its yield potential.

July 2019 estimates October 2019 estimates
State Hectares Tonnes Hectares Tonnes
NSW 390,000 429,000 160,000 176,000
Vic 400,000 640,000 380,000 608,000
SA 240,000 336,000 230,000 320,000
WA 950,000 1,000,000 950,000 792,000
Total 1,980,000 2,405,000 1,720,000 1,896,000

Table 1: AOF estimates for the 2019/20 canola crop. Industry expects all new-crop figures will be well up on last year’s.

 

 

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