As global and domestic canola prices break records in 2021, Australia's canola industry has the potential for sustained upside ahead.
Policies to curb emissions in North America and Europe are expected to boost global demand for oilseeds - and in particular canola - through to 2030.
This will present opportunities for Australian canola exports.
In Rabobank's base case outlook - outlined in our recent report Global Canola Opportunities in the Sustainable-Fuel Future: Is Australia fit and ready? - these are modest initially, but will grow as a result of structural shifts in the global industry.
This will initially occur in 2024-25, due to Canada's falling exportable surplus, and then again from 2026-27 onward due to the European Union's increasing canola import needs.
In the current 2021-22 season, global supply of canola has been severely reduced by drought in Canada - the world's biggest canola exporter - and by continued heavy European Union import demand.
And this has been benefiting Australia and other exporters.
Canola prices domestically are starting to break the $1000 per tonne mark for non-GM varieties, and overseas markets have already broken through that level earlier in the year.
EU MATIF rapeseed is currently trading at $1050/t.
A substantial lift in global canola production is expected next season - in 2022-23 - driven by improved seasonal conditions and elevated prices, which will expand acreage and contribute to a big re-supply.
However, in 2024-25, we expect new Canadian crushing capacity to come online to supply a growing renewable diesel sector across North America.
This will reduce Canada's exportable surplus, primarily to price-sensitive markets in Asia and Mexico, but also to Europe.
Canada typically produces close to 30 per cent of the world's canola, and accounts for about 64pc of global exports.
The rise in Canada's crushing capacity may see the global trade of canola decline by as much as 15pc.
Then from 2026-27 onwards, we expect sizable reductions in the use of palm oil as a feedstock for biodiesel in EU countries as it is phased-out to meet the EU's sustainability commitments.
The feedstock gap created will deliver an opportunity for even greater use of canola in the EU.
But just how much Australian canola - and canola prices - will benefit will depend on several variables.
These include how quickly the EU phases out palm oil in biofuels and how much Canadian canola exports drop, as well as how much global production grows and what additional sustainability requirements may be placed on Australian canola.
Realistically, there are only three other regions which could supply a growing global canola deficit - assuming high prices act as an incentive.
These are: North America, where production is expected to rise due to an area shift into canola; Ukraine, as canola yields advance towards levels seen in the EU; and the EU, although sustainability measures will limit production increases there.
While the road to 2030 for canola contains many uncertainties, we can be sure the global exportable surplus is on a downward trajectory.
And this will create opportunities for Australian canola.
In years when global production significantly under-performs, which it inevitably will, shortages will result in even greater opportunities.
But Australian canola will need to ensure it is "fit" to take advantage of these future export opportunities in the next decade, in particular in meeting the sustainability credentials which will be increasingly required in export markets - especially Europe.
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