Buoyant market makes canola likely choice for cash sales

Liz Wells, August 19, 2020


Most Australian canola crops like this one at Cockaleechie on South Australia’s Eyre Peninsula have received welcome rain this month, and many have been sprayed with fungicide to help maximise yield potential. Photo: Dan Adams

STRONG global prices for canola look set to continue into the Australian harvest, and make it the obvious choice for growers to sell off the header as exporters begin to accumulate cargoes to load as early as December.

Crushers in China and Europe are expected to remain as the major customers, with Europe under-supplied from its drought-affected domestic crop, and China’s door still firmly closed to volume exports of Canadian canola.

Australian canola is typically harvested from October to December, and if oil contents are average or better, marketers may be pushing seed towards markets like Europe and Japan.

Unlike China, Europe and Japan traditionally pay bonification for cargoes with oil content above 42 per cent.

In its August Foreign Agricultural Service report, USDA has forecast Australia’s 2020-21 canola exports at 2.35 million tonnes (Mt), up from 2.15Mt forecast in July, while Canada’s exports are forecast at 9.8Mt, up from 8.9Mt seen in the previous month.

Canadian canola and Ukraine rapeseed compete with Australian canola for European crusher business.

USDA has revised down its forecast for European canola and rapeseed imports in 2020-21 to 5.7Mt from 6Mt seen previously because of a drought-reduced Ukrainian export surplus.

Europe now accepts some genetically modified (GM) seed for biodiesel production, which has opened the market to Canada.

Australia is unique in being the only volume exporter of both GM and non-GM canola.

Australia has a domestic canola crush of around 1.1Mt, and industry estimates peg Australian new-crop canola production at 3-3.2Mt, up from a drought-hit 2.3Mt harvested last year.

Ratio breached

A Sydney-based broker told Grain Central many growers were likely to sell up to 90pc of their canola for cash at harvest.

“Canola at $600 per tonne delivered Melbourne versus ASW1 wheat at $275/t means that the classic 2:1 ratio has been breached, so selling canola is the clear winner.

“Crush margins are excellent in Canada, as China and the world still needs canola oil, but China has banned the major canola seed exporters from Canada from selling.”

GeoCommodities broker Brad Knight said new-crop canola values were “holding up nicely” for this time of year.

Harvest pressure and weather shocks in North America and Europe often create volatility in the global oilseed complex mid-year, but this has not been seen in recent months.

“There seems to be good depth in the market,” Mr Knight said.

“It’s being led by exporters, but domestics aren’t that far behind.”

Mr Knight said many growers appeared to be 10-15pc forward sold on canola, less than normal for this time of year.

“It’s been at $580-$600/t port since the crop went in the ground, so that call for action hasn’t been there for growers to book more sales.”

Prices for new-crop canola earlier this week were at $620/t delivered Kwinana in Western Australia, and $590/t Melbourne.

Lachstock Consulting’s latest canola supply-and-demand report said GM and non-GM accumulation appeared to be taking place in WA.

“Historically, they’re pretty good numbers, and the saying goes that anything with a six in front of it is good,” Thomas Elder Markets manager commodity market insights Andrew Whitelaw said.

“Even though we’re coming into a year with a big global supply, prices are staying up, and they’ve been quite high for Canadian canola and European rapeseed.”

Mr Whitelaw said some growers were up to 25pc forward sold on their canola.

COVID impact

Indonesia and Malaysia are the world’s major palm oil producers, and trade and media reports say their heavy reliance on labour to harvest the crop from September to November has been impacted by COVID-19 restrictions.

This is expected to continue to limit their exports of palm oil to China, and bolster Chinese demand for US soybeans and soymeal as part of its Phase One trade deal.

South American soybeans and Australian canola are expected to keep supplementing China’s crush demand.

“The whole oilseed complex looks pretty good, and speculators on soybeans are net long; in early June they were short or neutral.”

Mixed conditions

In South Australia and WA, the yield potential of canola crops in some districts has been limited by a lack of in-crop rain, while other parts are on track to produce average or above-average yields.

Parts of NSW are excessively wet, but overall, the state looks to be on track to produce above-average yields after two to three years of drought.

“The average grower doesn’t want to forward sell too much because there are production risks.”

These include frost at flowering and pod set, the fungal diseases of blackleg and sclerotinia if showery weather prevails, and shattering of pods if conditions turn hot and dry.

Conditions in Victoria are also mixed.

“It’s been a challenging year,” Mr Knight said.

“We had a wet start and the crop got in on time, but then it stopped raining.

“We’ve had some mice damage and a few agronomic challenges.”



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