Mecardo Analysis - Canola: Finally catching up
- By: "Farm Tender" News
- Cattle News
- Oct 18, 2018
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By Andrew Whitelaw | Source: CME, Mecardo.
In early September, I wrote an article on my concerns related to the lack of movement in canola pricing. It was pointing towards a likelihood of increased pricing due to the very tight balance sheet within eastern Australia. It is worthwhile refreshing a month later.
In our previous report, we had discussed the possibility that the east coast would have very short supplies, with the potential to not meet domestic requirements. Since then, conditions for Canola have only worsened (see September rainfall). During the past month there has been considerable acreages of canola cut for hay. It is hard to determine exact figures, however it will have a significant impact on overall canola production.
During July-September as drought impacted upon east coast crops prices rose. In wheat the rise was 27% whilst canola was more sedate with a rise of 10%. It is appropriate to re-examine the market a month later.
The canola market was strong at the start of September, however it was just short of the peak since 2010, which occurred in 2013. In recent weeks, buyers have been increasing their bids to secure access to stocks. The current spot price is now $55/mt higher in Port Kembla, and $36/mt in Port Kembla than the 2013 high (figure 1).
The current crop bids in Port Kembla and Geelong are now up 19% since the first week of July (figure 2). During the winter the majority of concerns were related to the NSW crop, this saw the spread between NSW and VIC widen. In mid/late September when canola crops in Vic started to be cut for hay, the realization of a depleted Vic crop resulted in the spread between states narrowing from $30/mt to $20/mt.
At present canola selling is still lackluster, with growers in general unwilling to sell. This makes sense as the price is likely to remain high during harvest, and production risk is still a reality.
Key points
* Due to dry weather there has been a considerable acreage of canola cut for hay.
* During the past month, the canola spot price has risen to the highest level since 2010.
* Canola had only risen 10% during July to September versus the dramatic 27% seen in wheat. Mid to late September has seen an additional 9% increase in pricing levels.
What does this mean?
A huge cloud is currently over the canola crop at present. It is hard to ascertain just how much canola will make it to harvest in light of the high levels of cutting for hay.
Another concern is the dry weather during September. What impact will this have on oil levels, or will the recent welcome rains assist to reach/exceed average.
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