Long term oilseed outlook indicates solid future for Canola


The current high prices in the oilseed complex were triggered by a combination of poor growing conditions in multiple key growing regions and voracious oilseed import demand from China, but what can we expect over the longer term for oilseeds, including Canola?

The latest FAO/OECD agricultural commodity outlook paints a relatively stable picture for oilseed production and demand prospects over the next decade. It predicts that production and consumption will remain roughly in balance over time, and prices will hold in real terms, only tracking up at the rate of inflation.

The current situation for the oilseed complex where both seed and vegetable oil prices have reached heady heights was caused by a significant tightening in the supply & demand balance. Poor weather in Brazil and the US impacted soybean crops, coupled with labour shortages in Malaysia and Indonesia impacting palm oil production. In addition, dry weather in Eastern Europe, particularly in Ukraine, resulted in a terrible sunseed harvest. All these factors added up to low supply. Combine this with voracious import demand coming from China drawing down stocks, and oilseed prices took off like a rocket, with the FAO oilseed index rising 61% from the start of 2020.  

The latest FAO/OECD forecasts of long-term world oilseed production (figure 1) predict that oilseed production will rise 9% from average 2018-20 levels by 2025 to a total of 560mmt. In the later half of the decade they are expected to reach 591mmt by 2030, with consumption keeping pace. Production of soybean, and other alternative oilseeds such as Canola, are expected to increase by similar degrees.

The area planted is only expected to increase by a smaller factor, 5% due to limited availability of arable land, with the more substantial production gains expected coming from increased average yields.

On the demand side of the equation, per capita vegetable oil availability, and by proxy, consumption is expected to lift in the developing world and Asia due to growing populations, rising incomes and greater propensity to consume processed foods. Overall world vegetable oil consumption is predicted to lift 7% per capita by 2030, with Indonesia clocking up growth of 25%, China 9%, and India 30%. Protein meal animal feed demand is also predicted to grow by 1.5-2% p.a. over the next decade, as less developed countries increase animal production, with China’s demand growth expected to emanate from a move towards greater intensification of pork production.

Biodiesel demand is an important component of total world oilseed consumption. Growth of around 5% is expected from this market over the next decade, reaching 51 billion litres in 2030. (Figure 2). Looking closer, the developing world’s increasing demand for transport fuels, and move towards renewable fuel policies will drive the growth in this market, particularly Indonesia and Brazil.

The sum result of the interaction is that oilseed prices are likely to trend upwards in nominal terms at no more than the typical level of commodity price inflation, meaning that in real terms, prices will remain relatively flat over the next decade. The FAO price prediction for the production weighted basket of non-soybean oilseeds is an average of around $US 500/ton till 2030 (figure 3).

What does it mean?

When considering the future prospects of the Canola crop, we must look at the outlook of the oilseed complex as a whole. Overall, the future projections and commentary put out by the OECD & FAO indicate that the current tightness in the oilseed supply and demand balance has been driven by transitory weather conditions, not a more persistent and permanent structural change in production or consumption tendencies. Looking forward, trends toward increasing vegetable oil consumption, and focus on renewable fuels and animal production, plus limited opportunity to increase planted oilseed area suggest that the future of oilseeds, including Canola looks bright.

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Key Points

  • World oilseed production and utilisation are expected to grow 11% by 2030
  • Biodiesel demand shrinking in EU, US; growing in Asia where possible upside exists.
  • Long-term oilseed prices are expected to remain flat to rising.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: FAO, OECD, Mecardo

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