Recently, Ag commodity markets have been supported by fears of drought in Argentina. As a major producer and exporter of corn and soybeans, any shortfall in production was going to have an impact on these already tight commodities. After weeks of hot and dry conditions, the forecast has finally turned wetter, featuring a good shot of moisture into the key agricultural regions. The question will be, does this arrest the slide? Does it build potential? Is it too late?

For now, the forecast has been enough to see some liquidation in soybean and soyoil/meal prices, which has spilled over into the wider veg oil markets.

European rapeseed (canola) futures have also been widely sold off after news from Germany announcing the intention to phase out biofuels made from crops. Germany, a major producer and exporter of biofuel, had already announced it was banning the use of palm oil in biofuel production from 2023.  The new proposal to end crop based biofuels by 2030 comes at a time of high costs and unpredictable supply due to the war in Ukraine.  The move is also seen as an attempt to comply with greenhouse gas (GHG) emission targets set by the German Government.

This last point seems a little counterintuitive.  The very introduction of biofuels was an attempt to reduce the amount of fossil fuel use, which is seen as having a direct influence on climate change. The concern around using crops to produce biofuel is around the land area, crop inputs and water required to produce enough dry matter.

The German proposal is not to phase out biofuels per se, but to use alternative feed stock, including used cooking oil, waste and animal fat.

What does this mean for Australian canola prices?  As roughly 30% of Australian canola is exported to Germany for biodiesel production, the loss of this market would be a big hole that needed filling.  On the breaking of this news, European (MATIF) rapeseed market fell sharply, resulting in a similar drop in Australian cash values.  This is likely a ‘knee jerk’ reaction and one that will resolve over time as normal market forces take over.  The other thing to factor in is that this proposal hasn’t been tabled in German Parliament yet, and even if it is passed, it will take time to implement. 

The week ahead….

In the short term, canola will take its lead from the Argentina situation and soybean price movement. 

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Data sources: Argus, Next Level Grain marketing, Mecardo

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