About a month ago we looked at the canola ‘wild ride’ and how it was continuing to that point. Since then the rollercoaster has continued, with canola falling, but bouncing again, with futures and local prices finding new 16-month highs last week.
Matif and
ICE rapeseed and canola futures fell from mid-May in line with US soybeans,
finding a base two weeks ago. The last
fortnight has thrown up some issues with crops in both Europe and Canada, which
has seen canola and rapeseed rally somewhat independently of soybeans.
Figure 1
shows Matif rapeseed and ICE canola in our terms. Matif has reached its highest level since
March 2023, passing through $800/t last week.
The $800/t level has been a solid resistance point for much of 2023 and
2024. In charting terms, we would think
that if Matif can maintain a price above $800, it might turn into a support
level.
ICE canola
values are not nearly as strong as they were back in 2023. In cropping, it’s better to be too wet than
too dry, and this is playing out in Canada, which seems to be following Matif
moves, rather than the other way around.
Locally the
market is starting to worry about canola crops.
Looking at soil moisture charts on the Bureau of Meteorology (BOM)
website we can see that large parts of the higher rainfall cropping areas are
well below average. This is where the
heavy canola crops are grown, and canola crops are going to rely heavily on
late winter and spring rainfall to grow reasonable yields.
Figure 2
shows local canola prices and Matif, along with the spread. Local canola values have rallied to $750/t on
the East Coast, and $800/t in the West.
The Geelong canola price spread to Matif has quickly narrowed from $100
to $50/t.
The current
spread is more akin to what we see in an average year. Locally prices are now at a premium to ICE
canola, again, at a level we would normally see in an average year. Dry years, with lower production, tend to see
our canola prices at stronger levels relative to futures.
What does it mean?
New crop canola prices are not yet at a level you would say are worth selling, given the state of the season. Those looking to take advantage of higher prices would be better off looking at futures or swaps to manage price, there could be further upside in basis if spring looks dry.
Key Points
- Canola and rapeseed futures have continued to show volatility.
- Matif rapeseed and local canola prices are at a 14-month high.
- Local forward contracts are still a risky proposition, using futures to manage prices is prudent.
Click on figure to expand
Click on figure to expand
Data sources: ICE, Matif, Refinativ, Mecardo
