It has been a little while since we looked at futures curves, with an eye to how plantings might be impacted. The spread between canola and wheat has remained wide, with GM canola still lagging its conventional counterpart.
ANZAC day has come and gone, not that many modern croppers
wait until late April to start sowing any more.
The sowing plan would be largely set, with some ground possibly swinging
depending on whether we see rain at some stage over the next couple of
weeks. The forecast doesn’t look good
for the next fortnight at least.
A couple of weeks ago, we looked at how US plantings are
forecast to respond to price signals this year.
Over in the US, corn has taken some acres off soybeans, with price
differentials moving closer, and normal rotations dictating a swing in
plantings.
Anecdotal evidence suggests croppers are planning on sowing
more canola this year, and it’s not surprising, looking at the price
differences. Wheat at $300-350 and
conventional canola at $750 make canola look attractive where it can be grown.
There has been a bit made of the strong spot futures
contract for canola in recent weeks, but if we look further out, prices aren’t
quite as strong. Figure 1 shows the ICE
canola and Matif Rapeseed futures curves in our terms. The nearly $100 spread between the prices
remains and is influencing values here.
Forward contract values for conventional canola have
improved relative to Matif, now sitting at a $50-60 discount for December. A far cry from the $100 we saw at times over
the last harvest and possibly supported by the ordinary early sowing conditions
in key canola areas.
The spot contract for ICE canola is deceiving if used to
price our GM Canola. A short-term supply
squeeze has boosted spot prices, with later contract cheaper. Our new crop Canola values, sitting close to
$700/t might find some upside if plantings are down. The $100 spread between CAN and Canola GM is
reportedly seeing more conventional canola planted.
The SRW forward curve is shown in Figure 2, with the cost of
carry built into prices. As the northern
hemisphere harvest approaches without real production issues, prices struggle
to gain any upward momentum.
What does it mean?
The better price of canola relative to cereals and increased acreage, might be thwarted by the season. If that plays out, we can expect canola values to close the gap on their international counterparts. There isn’t much for wheat producers to get excited about, but consumers should be considering their options while prices are low.
Key Points
- Canola prices are strong relative to wheat, despite a relatively flat forward curve.
- Local canola prices remain discounted to international values but have made ground.
- Lower canola plantings driven by the season might see support for canola.
Click on figure to expand
Click on figure to expand
Data sources: CME, ICE, Bloomberg, Mecardo
