Grain Snippet: Tariffs and Geopolitical Tension Drive Canola Prices
The canola harvest in SA is nearing completion with reports of average to above average yields especially through the higher rainfall zones. The cool conditions through spring and late rains helped crops to extend flowering which improved yield and quality has also been good with above average oil reported. ABARES crop reports estimates the 25/26 SA canola crop at 455kMT, up 77kMT (20%) on last year’s drought affected season. The 25/26 Australian canola crop is forecast 7.22MMT up 0.82MMT (12%) year-on-year with WA forecast 3.9MMT, up 1MMT (34%) due to a very good growing season.
Non-GM canola prices in SA firmed through spring into to late-November as cool weather delayed harvest and grower selling. Prices firmed from $760/MT in mid-September to $795/MT in late November (decile 8.6) also aided by news in October that China would reduce trade barriers and commit to buy 12MMT of US soybean, which helped support global oilseed prices including canola and rapeseed.
Canola prices fell through harvest, scoring a low in early January, of $711/MT (Outer Harbor) as basis weakened due to grower harvest selling. Prices were historically strong circa decile 8.6, and also relatively strong compared to prices for wheat (decile 5.5) and barley (decile 7.2). Also weighing on canola prices through December was a fall in crude oil prices as OPEC+ nations increased daily crude oil production adding to supply and therefore weighing on price. Globally, approximately 30% of oilseed production is used for biofuel production and movements in crude oil prices correlate with oilseed prices. Some examples are rapeseed consumption in the EU, soybeans and Canadian canola in the US, soybeans in Brazil and palm oil in Indonesia. Canola prices have firmed through January to $740/MT, at the time of writing, following crude oil prices higher as geopolitical tensions around major oil countries including Venezuela and Iran create supply concerns.
A positive development for global canola consumption and trade was the announcement on Friday 16 January, following Canada’s Prime Minister visit to China. Canada has agreed to significantly reduce tariffs on Chinese Electronic Vehicles (EVs) from 100% to 6.1%, and in return China has agreed to reduce the tariff on Canadian canola meal from 100% to zero and on canola seed from 75.8% to 15 % which is likely to take affect from 1 March. China had historically purchased 2MMT of Canadian canola meal and 5MMT of Canadian canola seed annually. With China no effectively longer buying Canadian canola seed and meal, Canadian canola futures slumped as crush margins declined, due to a lack of export meal markets, and canola seed exports declined adding to domestic stocks. Canadian canola futures lifted on the announcement and is likely to lift global canola prices as trade resumes between historical trading partners. However, is does create some uncertainty for Australian GM canola exports that have been in the process of pivoting to benefit from Chinese canola demand.
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