For southern canola growers, the timing of last week’s decline couldn’t have been much worse. Here we take a look at harvest pricing and whether we can expect a bounce as harvest winds up.
As the southern harvest finally got a run on, canola prices crashed. It wasn’t harvest pressure; it was falling international markets, on the back of rising expectations of canola production in Canada. Figure 1 shows the United States Department of Agriculture (USDA) World Agricultural Supply and Demand Estimates (WASDE) report forecast compared to historical production.
Over the last few months, canola production estimates have been on the rise, now sitting at record highs. The latest data is showing a strong surplus this year, rising ending stocks, and a stocks-to-use ratio not seen since 2018 19.
Figure 2 shows declining canola prices both internationally and locally. ICE canola futures have declined the most, down 5% in two weeks, while Matif futures are down 3%. It doesn’t sound like much, but it equates to $37 per tonne and $25 per tonne, respectively.
Locally, harvest pressure has had an impact, with domestic port pricing falling by $30 to $45 per tonne on the east coast. In the west, price declines of $20 to $30 per tonne are more in line with international markets.
Prospects of price increases in international markets will rely on some production issues, mainly in South American soybeans, with canola and rapeseed crops not due for planting in the northern hemisphere until we move into the northern hemisphere spring.
Figure 3 shows harvest progress as of the 15th for GrainCorp sites on the east coast, and the 8th for WA and SA. Victoria has had a run in the last two weeks, with NSW slowing down. GrainCorp receivals are still nearly 2 million tonnes behind the same week last year, so there is either a lot still to come in, or harvest is weaker this year.
The massive WA crop has been well publicised, and we can see in Figure 3 how CBH receivals are dwarfing other states combined.
What does it mean?
Those who booked canola early for harvest cash flow needs will no doubt be happy, but it should still be pointed out that canola remains well priced compared to historical levels and cereals. If the east coast harvest isn’t as strong as expected, there could be some upside once harvest deliveries cease. There is room in basis for prices to rise.
Key Points
- Canola prices have taken a dive thanks to international supply factors and some harvest pressure.
- The east coast harvest remains behind last year, with WA records being broken.
- If the east coast crop is weaker than expected, there could be a post-harvest bounce.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, USDA, Bloomberg, Graincorp, CBH, Viterra, Mecardo
