Grain Market Update - Canola (November 2024)

Article provided by : Michael Jones, Grain Focus, Young

International oilseed markets had a stellar run up over the past few months. Australia’s canola market closely tracks the European rapeseed market, as Europe is our major customer. Rapeseed markets went up nearly 25% from the lows in August until November 19. The rally was driven by a combination of tight supply and strong demand for oilseeds. Palm oil is a major player in the oilseed sector and supply was tightening in the key producing countries of Malaysia and Indonesia. At the same time, demand for palm oil was strong from India, other oilseeds (soy oil, canola, rapeseed) were experiencing strong demand from the biofuel sector, plus endusers substituting palm oil, created additional demand.

 Unfortunately, the overseas market saw a sharp correction on November 21. It was the largest daily fall seen in European rapeseed in 16 months, which took the market back to levels seen a month earlier. It also translated into a $40/mt drop in Australia’s market in one day. This sudden drop was put down to profit taking by speculators who had bought oilseed futures on the rallying market, who then decided to sell and take a profit on those positions. Now the market is left wondering whether this is a correction or a break in the upward trend.

 The sudden drop in the canola market makes for a tough decision for those growers still to harvest or holding unsold tonnage. Regardless of where the market has been, prices are still at historically high levels. Port Kembla canola bids were at $745/mt at the time of writing, which is a Decile 7 when looking at the 5-year price range and well over the 10-year average.

 Upside potential

• Export demand from the east coast has been very strong this year, which is reflected by the number of export buyers in the market each day who are showing no sign of filling their requirements yet. Grower selling has been very active given the high price compared to other grains. There could be more than 80% of the harvest sold so far. This could create a supply squeeze in the coming months if buyers decide to fight over the remaining unsold tonnage. This would be a good outcome for those holding canola post-harvest, but it is also a risky approach as once the immediate demand is satisfied, there may not be enough tonnage to justify further shipments and buyers could suddenly disappear.

• Canada’s canola harvest was officially forecast by their government in October at 19mmt, but many in the trade think it was closer to 18mmt or lower. The next government update will be in December and if it comes in lower than expected, this could be supportive of the canola market.

Downside potential

• Looking at the European rapeseed futures on the French Matif exchange, it is seen that the rapeseed market is currently what is termed “inverted”. Prices are higher for the earlier months (Feb) than they are for the later months (May/Aug). This is a sign that the market is paying a premium for prompt delivery rather than paying carry to hold for deferred delivery. Australian exporters would be heeding this message and exporting immediately rather than later in the year.

• South America is forecast to have another record soybean crop which will be harvested early next year. This could be the preferred source of soybeans for China if the new US administration start a trade war as expected. This would put some uncertainty in the oilseeds market and force US soybeans to find alternative markets other than China.

•   The Australian canola harvest will be arriving in import destinations over the next few months, which could cap further upside in canola importer price ideas.

  The information contained in this article is given for the purpose of providing general information only.