International canola prices have continued to bounce around in the face of fluctuations in seasonal growing conditions and harvest weather. Locally canola values haven’t been as volatile, as the trade comes to grips with a much drier than normal winter in key growing areas.
ICE canola,
which is based in Canada, has been the most volatile futures contract in recent
times. Price rises were due to it being
too wet. This brings the risk of
washouts and slow harvests, but we often see wet weather rallies disappear as
quickly as they come. Wet weather rarely
affects production like dry weather, and delayed harvests usually come in,
albeit with some quality issues.
Figure 1
shows ICE canol has fallen back to lows seen earlier in the year, at levels not
seen since early 2021. MATIF rapeseed
futures have fallen, but we can see they still sit well above the lows seen
back in the first quarter of 2024.
Locally
canola prices participated in the international market rally but also gained
some ground thanks to basis narrowing.
Local
canola basis narrows when supply concerns arise. Figure 2 shows that while Australia is
expected to produce a strong canola crop, 42% of it will come from WA. Most of the crush is on the East Coast, and
with Victoria and SA experiencing a dry winter, supply concerns are seemingly
starting to arise.
Victoria
and SA are forecast to produce roughly half the East Coast canola, so any supply
cuts will push prices higher, especially in southern port zones. In 2018-19 Geelong canola prices were at
parity with Matif, and at a strong premium to ICE Canola.
A good crop
in NSW will be enough to supply the local demand, but continued dry conditions
would curtail export supplies.
What does it mean?
The uncertainty surrounding the canola crop will be limiting forward sales. Prices north of $750/t are likely required to see growers take the risk of selling physical canola they are not sure will make it into the bin.
This should see local basis hold at stronger levels than last year right up until harvest when physical sales start to put pressure on prices. What happens in international markets will be determined by northern hemisphere harvests, and how the soybean crop develops in the US.
Key Points
- Canola prices have held on to some of their gains as production concerns continue.
- A dry winter in Victoria and SA might impact canola production and basis in the south.
- Canola basis should remain stronger than last year, but prices will fluctuate with international values.
Click on figure to expand
Click on figure to expand
Data sources: Refinitiv, MATIF, ICE, Mecardo
