We’ve had a couple of queries on the canola market structure, and why GM canola, in particular, is positioned where it is. As always, it’s supply and demand driving the market, so we went searching for some export data to try and provide some clarity.
Canola producers, especially those who planted GM Canola last year, will know about the spread between conventional and GM canola in the current markets. Figure 1 shows that it was only in October when then markets started to diverge, with the difference now at record levels.
Last harvest GM Canola sat at just a $25/t discount to conventional canola. This year the discount has ranged from $100 to $130/t. Without knowing the costs of production for each canola variety intricately, it’s safe to say that at the current discount, many producers will be swinging back towards conventional canola when planting starts in April.
The large discount for GM canola isn’t a local thing, it’s being driven by international markets. Figure 1 also shows the main futures markets for conventional and GM canola. The MATIF Rapeseed Futures are a French-based contract and are the base for conventional canola.
Europe’s rapeseed crop was weaker last year, and tighter supply has given their futures a strong lift. Figure 2 shows Australian canola seed destinations. With much of our conventional canola seed exported to the EU, mainly to Germany, Belgium and France, it makes sense that our conventional canola prices follow Matif values.
The Canadian canola crop is almost entirely a GM crop. As such, the ICE Canola futures contract is a GM-based price. Surprisingly we do export some canola to Canada, albeit a very small amount, but it is in competing in export markets where GM canola is priced similar to ICE.
Japan is one of the biggest markets for GM canola. Last financial year Australia exported 1.3mmt of canola to Japan. Canada exported 1mmt of canola to Japan in the 2023 calendar year, and close to that in 2024. China was Canada’s largest market by far, taking 5.75mmt in 2024 to November.
Canadian canola markets have a couple of bearish factors hanging over them. China is ‘investigating’ Canadian canola exports, with the view of potentially placing a tariff on them due to a dispute over the electric vehicle trade. Additionally, the US are looking at slapping tariffs on Canadian canola oil. The US takes over 90% of Canada’s canola oil exports.
What does it mean?
For GM canola prices to rally back to a more normal discount to conventional canola, they need the Canadian futures price to rise. There is likely to be some resolution to the US threats over the coming months, but the China uncertainty could drag on. If China does place tariffs on Canadian canola, it could boost demand for our GM stock. However, our exports to China have been very small since 2019-20.
Have any questions or comments?
Key Points
- GM canola is heavily discounted to conventional canola in oilseed markets.
- Divergence in French rapeseed and Canadian canola futures have caused a discount.
- Uncertainty in demand for Canadian canola and oil is helping depress GM prices.
Click on figure to expand
Click on figure to expand
Data sources: ABARES, ABS, Bloomberg, Mecardo