THE global fundamentals for oilseeds have those within the Australian canola industry forecasting a drop in prices, but there is some discrepancy as to how much downside there is.
The major pressure is coming from a massive South American soybean crop, which is expected to keep prices at or below current Australian values of just under $400/t port.
Rob Dickie, canola marketing manager with GrainPool, the grain marketing arm of WA grains business CBH, said it was difficult to pick the exact movements of the market, but confirmed that the monster South American crop would have an impact.
"The crop is forecast between 65 and 67 million tonnes in Brazil, while the Argy crop is forecast around 52mt, and this could have an impact on the oilseed complex if Chinese buying is not maintained."
There's just been over 200mm of rain in southern Brazil which will delay the start of harvest and has kept prices pretty firm this week, although it is unknown whether there will be widespread quality issues.
However, Mr Dickie said there were also potentially positive influences on the market if China gets back into the market for Canadian and Australian canola seed following the recent blackleg restrictions imposed on imported seed into China.
Felix Mueller, canola trader with Elders Toepfer Grain, said the market was being driven by fundamentals.
“The managed funds are definitely out of the picture at the moment.”
He said the Australian market was generally trading around $20/t higher than the European price, but that the general sentiment was that pricing should be somewhere between the two values.
“The feeling is that Australia is a little dear, but Europe is also seen as a little cheap.”
While acknowledging the massive South American crop, he said the market also needed to factor in South American usage, especially given rising crude oil prices.
“Looking at South America, we could see strong local demand, with biodiesel coming back as an economic option with lower oilseed prices and rising crude oil prices.”
Mr Dickie thought local South American usage would be less important than what is happening in China.
“The key point though is the fact that a lot of those beans will have to be consumed in China, the largest importer of oilseeds in the world and the market has been coming off due to the fear of slowing imports to China, as result of their tightening financial policies.”
Meanwhile, the Chinese situation continues to be one of the major talking points within the Australian canola industry, but Mr Dickie said there had been little action, in spite of strong lobbying from both the Australian and Canadian governments.
Mr Mueller said he thought the market would continue to drop, but was not sure by how much.
“I doubt we will see a rally, but the question is how far it will fall and how quickly.
“There’s nothing bullish in the market right now, but maybe the South American situation will see demand using more of the big crop than is expected and things will not be as negative as some are suggesting.”
Another factor is canola’s premium over soybeans, Mr Mueller thought there was scope for a continued premium for canola over beans, due to preference for canola in some markets, but Mr Dickie said the premiums would likely remain only slight, as canola needed to price itself competitively against beans to increase the consumption of canola over soybeans.
Australian canola will continue to go into Europe, although Mr Dickie forecast it would be less than last year.
Meanwhile, the Australian Oilseeds Federation (AOF) released its final Australian crop production estimate this week, putting Australian production at 1.91mt, with good crops in WA, SA and Victoria, slightly up on last years production, which was the biggest crop in 10 years.
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