Monday, May 30, 2011

Nows the time to pull the trigger on new season canola

After languishing around $600/t over the past four months, new season canola has climbed an astonishing $73/t in May, and are now touching price levels not seen since July ’08. Along with the rise in international futures, domestic prices have risen at a faster race, with basis (over the prevailing Winnipeg Nov ’11 futures) currently at A$89/t, it was -$2/t in mid March. In the eastern states basis is still historically very strong, currently at $42/t in Vic/NSw and $61 in SA.

There has been plenty of chatter about the potential loss of canola acreage in Canada attributed to the persistent wet/cold weather, but the driver of the current market during the past month has been European weather woes and subsequent surge in Matif rapeseed futures. Canadian canola for November delivery is US$70/t cheaper than EU rapeseed; two months ago this same spread was just US$20/t! This has allowed canola markets to out perform and distance them selves from the Chicago soybean markets.

If we compare our forward prices to EU rapeseed Nov ’11 futures (€481), basis would be $33/t (WA), $9/t (SA) and -$10/t (Vic/NSW). Still very high historically! So could there be any bullish news coming out form Australia that could drive domestic prices higher. Australian Oilseed Federation in there May update, estimated that WA would plant 830,000 ha (830,000/t). But given the low subsoil moisture, potential shift to a safer rotation crop after last year’s disastrous harvest and late break in the season, the real area could be around 700-750,000 ha.

With forecasts for the 11/12 EU crop being downgraded significantly in the key high yielding growing regions of Germany and Northern France (total EU forecast at 18.5 mmt), it is expected Australia will pick up the slack. With improving crush margins, an increase in demand for Australian canola will be apparent, however Australia may see some competition from the Ukraine as they have recently removed their export quotas.

No comments: