By Andrew Whitelaw | Source: USDA, ACA
The past two months have seen considerable reductions in canola pricing in Australia. Figure 1, shows the port price around Australia. Canola pricing has dropped around 10-13% dependent upon port. Canola along with pulses have been considered a strong performer in recent years, but there has been a turnaround.
In 2016 cereal prices were in the doldrums (and are still there), which encouraged growers to consider an increase in oilseed acreage. This occurred in many parts of the world and across all oilseed commodities. Although Australian canola year on year production was down 29%, other regions had considerable increases to take up the slack. Canada, increased production by 10%, whilst Europe gained an equally impressive 8%. The grand prize however goes to Ukraine, who due to both yield and acreage increases posted a 76% increase. Our concerns relating to 2017/18 canola pricing were outlined in article in early 2017 (Get some cover & Careful with canola), with expectations that supply would put a dampener on the market.
Figure 2 & 3 represent the futures prices for Ice Canola (Canada), and Matif Rapeseed (France), from 2010 to present. In these seasonality charts, rather than use a min/max for the seasonality banding, we use a 70% range (or 1 standard deviation). The 70% banding is used to remove the extremes in the market place, and we believe this gives a better indication of the seasonality, as opposed to a min/max which can be extremely volatile.
The ICE contract has largely followed the average during 2017, however in the past 10 weeks we have seen prices trending downwards sharply. Matif on the other hand has been trading considerably below the long-term average, before likewise having a sharp downward fall.
In additional news, the EU parliament have decreed that palm oil for biodiesel purposes in Europe will be phased out over the coming years, with a complete move away by 2021. At present crop fuels make up a large volume of the biofuels mandated under the renewable energy directive (RED). The percentage of fuel derived from crop based biofuels will now be capped at 7% until 2030.
This has the potential to be a big blow to the overall oilseed industry, and one which Australian farmers have to be aware of due to our reliance on EU biofuel market for our canola. It is too early yet to determine the impact, however with the removal of palm oil, there may be more demand for Australian canola.
Supply and demand are the biggest drivers of market, and in agriculture the supply side of the equation is the most important. The past year has seen an increase in supply, which has resulted in lower prices for canola.
The majority of growers in Australia and overseas who made the decision to plant a bigger acreage due to higher prices did not participate in the forward market. It is important to remember that the price at seeding regularly has no bearing on the price at harvest, therefore if we are making our seeding decisions on the current price, then we need to be prepared to take some cover either on paper or a physical contract.
In terms of the EU story, there is still a lot of information to digest to determine whether this is a positive or negative story for Australian canola. I will look into the numbers over the coming days.
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