Canola growers cashing in

By Sam Reichstein

Canola harvest is wrapping up quickly through NSW, as harvest rolls south and east at a rate of knots. Growers have enjoyed some great results with big yields and prices remaining firm through harvest. Prices have continued to trade around $600/mt Port which historically is a very strong price and so growers have been aggressive sellers to cash in while it lasts, particularly after the past few poor seasons. It is pleasing to see growers benefit from this situation given the hardship of the last few years.

Despite heavy selling, prices have held up well, with strong demand from domestic crushers and exporters looking to cover sales on the books. Globally, the oilseed complex has been well supported by strong demand given current low global stocks. With the pickup in demand, the global oilseeds market is inverted, which means prices are higher in the spot or nearby than they are in the deferred, further into 2021 as consumers want the product now. This should incentivise the market to sell upfront and to move product as soon as possible, rather than holding it and incurring additional storage costs. In Australia, the market is trying to do this, however, on the east coast the limiting factor may be freight and port capacity and competition between all commodities for the capacity to move the product out of the country. This is one of the challenges of a big production year.

Given the smaller size of the canola crop relative to grains, a couple of extra export vessels, or a couple less, of canola than the market is anticipating will have a big impact on supply and market sentiment domestically.

The next input for the direction of the global oilseed markets will be the development of the South American soybean crop, which has been on the drier side and the Covid impacts on demand – for biodiesel in particular.  Global soybean seed and soybean oil stocks are both relatively tight and so reduced supply and or larger demand, would continue to see prices move higher and vice versa if there was higher production and lower demand.

Next inputs for canola specifically will be the final production number in Australia and the ability to get the seed out to the export markets. Slowly the focus will then move to new seasons production, with the European crop now planted. Crop conditions look to be average for the most part, with some drier areas through the Black Sea, however unlikely to be much to report on until the crop starts to come out of dormancy in 2021.

The Canadian crop doesn’t vary much year to year, however Australia again will always be a question mark for 2021 as Australia is one of the most drought prone regions for the production of cereals and oilseeds in the world. Fundamentals look good for growers to plant canola again next year with prices strong and growers looking for rotations after a big cereal crop, however as we all know, rainfall will be the key driver.