Extreme international canola values not reflected here

Canola and Rapeseed prices have been on the rise lately, with old crop values in Canada extremely expensive, with some of the strength spilling over into new crop values. From this time of year, our prices tend to follow new crop values, which are presenting hedging opportunities.

Issues with the South American Soybean harvest, rising crude oil prices, and tight old-crop supplies have all combined to push international canola and rapeseed prices higher. 

At the start of the year, just 9 weeks ago, May 21 ICE Canola Futures were at $626/t, roughly equivalent to our track prices here.  Since January Canola futures have rallied 25% to close on Friday at $CAD785/t.  Those who follow local markets will know that values here have seen none of this strength, having fallen slightly since January.

Short-term oilseed supplies are extremely tight.  Wet weather is delaying the South American harvest, which means importers are turning to the US for soybean supplies, and canola is rising in sympathy.

The expectation that the South American soybean crop will eventually be harvested and exported has new crop soybean and canola futures at heavy discounts to the spot market.  November 21 ICE Canola Futures are at $CAD619/t, a massive discount.  Figure 1 shows that new crop values have risen strongly, however, moving up towards MATIF values in our terms.

Australian non-GM canola prices are largely governed by Matif values these days, with Europe being a major export market.  Spot Matif prices are also at a premium, at 518 euro per tonne for May, which is $796/t in our terms.  Unfortunately for those holding old crop canola, our port prices are currently set against new crop Matif values, which are at $660/t (figure 1).  We are at a discount due to the big local crop.

With much of the old crop canola sold here in Australia, focus has turned to new crop pricing, and whether there are hedging opportunities in this spike.  New crop forward prices did rise last week with increasing international values.  Port canola values were at around $620/t on Friday, which as figure 2 shows, is at a discount to both ICE and Matif futures prices.

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What does it mean?

With new crop canola sowing still around a month away from starting, it is a bit of a stretch to lock in prices for physical delivery.   The good news is they are not great value anyway, with Matif or even ICE futures offering better value.

 

Those who don’t mind a punt could even sell old-crop futures, in the expectation that the old/new crop spread will close up.  It should be understood however, that old crop futures currently have little correlation with our new crop physical pricing, and it would leave the seller open to further supply squeezing.

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Key Points

  • Delayed soybean harvest in South America has spiked international oilseed values.
  • New crop oilseeds are at a hefty discount, but still well priced historically.
  • Local forward prices are at a larger than normal discount to futures.

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Data sources:  Mecardo, Reuters

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