All that glitters may be gold for oilseed crop heading into the harvest period

Canola on a roll but watch signals closely

Cropping
Domestic canola prices will be influenced by the ability of the market to move seed to port and export it to meet delivery against futures contracts.

Domestic canola prices will be influenced by the ability of the market to move seed to port and export it to meet delivery against futures contracts.

Aa

Canola is on a high but maintaining prices will depend on being able to move it out of the country.

Aa

AS HAS been well publicised, canola prices are extreme and - with harvest just around the corner - growers are anxious to get the crop off and convert it into dollars.

Given the current price, it appears to be a simple decision for growers to sell straight off the header to capture these high prices and lock in a great margin.

There will always be the temptation to hold off selling in the hope that prices could continue go higher, and growers may question why they shouldn't wait another week.

There is nothing to stop prices rallying further.

But a quick look at the market structure will provide some caution to those who are tempted to hold for further upside.

Related reading:

Canadian and European futures markets are both inverted, meaning that the spot price is higher than the price for future deliveries.

At the time of writing, the European Matif Rapeseed Futures had an 11 Euro - or $17 per tonne - inverse between the February 22 and May 22 contracts, and a further 100 Euro - or $160/t - inverse between the May 22 and August 22 contracts.

What does this mean for domestic canola prices?

The impact depends on the ability of the market to move seed to port and export it to meet delivery against these contracts.

Due to a big cereal crop, this will be challenging for the market - particularly given like canola, wheat and barley will be competing for the same export capacity.

With a five million tonne canola crop to be harvested, and assuming that not all of the exportable surplus of canola can be exported prior to February - when exporters have their fill for spot shipments - domestic prices will move to pricing against the May 22 Matif contract.

Also, when export capacity is sold prior to May and the exporters and crushers have their fill, any exportable surplus of canola will be facing a steep inverse to compete against new crop production from the Northern Hemisphere.

This is particularly from the Ukrainian and Russian crop, which will be harvested in August, and then followed by the rest of Europe and Canada in September.

Taking a quick look at 2022 crop prospects, although pricing is lower than that on offer for current crop, growers are still incentivised to plant canola - as the price is more than two times the price of wheat.

In Europe, the majority of the crop is winter crop that has already been planted and area is forecast to be higher.

The Russian and Ukrainian crop has largely moved to a spring planting and, so, will be planted in March.

The Canadian crop will also be planted in April.

Assuming that Canada doesn't have back-to-back, one-in 50-year droughts, it would be expected that - all else being equal - global canola production will rebound for the 2022-23 season.

Overall, a big factor for the domestic canola price will be driven by the ability to move seed out of the country.

By holding on to canola in the hope of a further price rise, you will be betting on the ability of the market to export or consume the crop prior to the inverse. Or, that new crop production domestically or internationally is poor, and the market will move from inverted to a carry structure in order to pay you to hold on to - and finance - carrying the seed.

Naturally, the market will continue to throw curve balls, such as weather, politics, energy prices and Chinese demand to name a few.

So, for those prepared to hold, buckle yourselves in and enjoy the ride.

Love agricultural news? Sign up for The Land's free daily newsletter.

Aa

From the front page

Sponsored by