We recently had a query which came across the desk, (so to speak - in an email to be exact), which asked if canola would take some acres off barley this year. In this article we will look at historical relationships between price and plantings and see if we can find a pointer.
Figure 1 shows planting areas for the big three winter crops over the last 25 years. This data can be found in the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) crop report data. You can also delve into state data if you want a regional perspective.
We can see in Figure 1 that all crops have significant variation in planted areas depending on how the season starts, and subsoil moisture. Wheat area has been relatively steady since 2020. Barley plantings took a dip in 2021-22 thanks to Chinese tariffs depressing prices. Barley plantings have since recovered somewhat but are not back to where they were pre-2021.
The area planted to each crop depends on seasons, crop rotations and of course price. Figure 2 shows the price of canola and barley at Geelong in March of the planting year. In theory stronger price and margins for canola would encourage more plantings, and vice versa with barley.
It is not that easy to tell simply looking at area and price charts, so in figure 3 we have put them on the same chart. Figure 3 shows the premium canola held over barley in March of the planting year, along with the barley canola planted area ratio. It is clear on figure 3 that a stronger premium for canola in March sees the ratio of barley/canola planting fall.
The small canola price premium in 2019 saw barley price rise relative to canola, but this would have had a bit to do with the late break and lack of subsoil moisture as well.
The last two years have seen price premiums and planting ratios remain relatively steady. The current price premium for canola over barley is close to 1.5, with canola at $740/t and barley $300/t. The last time we saw this premium was in 2022, when barley plantings were just only marginally larger than canola.
What does it mean?
Looking at historical data suggests that we could indeed see a sizeable swing in hectares to canola this year. A stronger canola premium is strong encouragement, and if the season is favourable in canola areas we should see more go in. With barley and wheat priced at similar levels, canola could take some area off wheat and barley.
Key Points
- Winter crop plantings can vary based on seasons, rotations and price.
- There is a good relationship between canola and barley price spreads and plantings.
- Strong canola prices suggest more hectares will be planted this year at the expense of cereals.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: ABS ABARES, Reuters, Mecardo
