This season's canola crop for Australia is looking like it will be another high-production year, currently pegged at around 5.5 million tonnes. This figure is consistent amid forecasts from the Australian Bureau of Agricultural and Resource Economics and Sciences, the United States Department of Agriculture and the Australian Oilseeds Federation.
While the total expected area is up 15 per cent year-on-year, the drier start to the season in SA and WA has yield expectations lower, closer to the five-year average. Despite another rough start to the season for many growers, the market does not seem overly concerned with the current yield forecasts, as the Bureau of Meteorology is forecasting above average rainfall for spring through most of Australia. Crop development is varied with early sown crops budding while later sown crops have had to contend with cold temperatures slowing vigour.
Internationally, canola markets in Europe and Canada have seen high volatility in prices with weekly price moves of more than an equivalent A$50 a tonne. Current weather forecasts for Europe and North America are providing some market support for canola. Below average rainfall and hot conditions continue in Europe and are expected to return across the Canadian prairies in early August.
Seasonal weakness attached to the European winter rapeseed harvest should be tapering as harvest will be largely finished by mid-August, whereas the Canadian canola crop harvest should be starting in late August. The USDA forecast for Canadian canola production is 20.0mt which is in line with the five-year average (2021 excluded) but other analysts are forecasting closer to 19mt, still significantly higher than the drought affected 12.6mt in 2021.
Global crude oil futures have been sold off on recessionary fears created by surging inflation and central banks around the world aggressively lifting interest rates to bring inflation back under control. WTI crude oil has dropped below US$100/barrel on the back of waning market sentiment as US recession fears grow and lower economic activity and reduced energy demand is expected globally. 14pc of vegetable oils are used for biofuel production and therefore movements in oil prices are reflected in canola prices. Managed funds continue to unwind their net long position in soybeans which in turn has dragged the oilseed complex lower.
Palm oil futures have tumbled significantly since the Indonesian export ban was lifted in June. Indonesia, a major palm oil producer, introduced the ban in April 2022 to curb high internal prices. With the lifting of the ban, palm oil futures have fallen around 40pc since May. After peaking in May 22, palm oil futures are now back to levels traded before the Russia / Ukraine conflict which has significantly impacted all global grain prices since February.
While weather is somewhat bullish for oilseed markets, combined global palm, soybean and canola seed production is expected to reach a record high for 2022/23. Although global ending stocks are also forecast higher year-on-year, it remains slightly under the five-year average with record combined consumption drawing down the increased supply. As the global balance sheet begins to loosen its belt, oilseed prices could begin to normalise from the extreme levels seen over the past 12 months.
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