Grain Snippet: Canola Prices Pullback Following Global Oilseed Uncertainty
Global rapeseed prices have been extremely volatile through March. Earlier in the month, EU rapeseed prices were testing 2-year highs due to tight stocks of rapeseed in Europe. According to the USDA, last season’s rapeseed production in the EU was 17.2MMT, down 2.7MMT y/y due to a very wet growing season reducing yield. Ukraine rapeseed production was also lower at 3.8MMT, down 1MMT y/y. Europe has strong annual demand for rapeseed for biofuel production. Demand has been very strong with prices in the nearby futures month of May delivery sitting higher than the August contract – coinciding with the new crop EU harvest. 25/26 rapeseed production in the EU is forecast to be up 12.4% from the prior poor year, and up 6.4% from the 5-year average.
Canadian canola prices were also elevated in early March as exports to China remained strong. Importers were building stocks on the view that China might implement tariffs on Candain canola in retaliation on Canadian tariffs on Chinese steel and EVs. Supporting global oilseed prices has been high palm oil prices. Palm oil prices have been supported by lower production in Malaysia due to labour shortages for the hand harvested crop and wet weather limiting harvest activity. Also supporting palm oil prices was the move by the Indonesian government to increase domestic biofuel use of palm oil, which has reduced exportable supply.
Then in early March Canola futures tumbled, with EU rapeseed futures following suit due to the likelihood of a 25% US tariffs on canola imported from Canada. Canada exports 3.35MMT of canola oil to US. In February, the tariffs were delayed, and this encouraged speculators to take a long position (buy) Canadian canola futures. With the tariff announcement, speculators began to sell to reduce their long position. Added to this, China announced a 100% tariff on canola oil and meal, which caught the market by surprise. The market was expecting a potential tariff on Canadian canola seed in September following an anti-dumping inquiry by the Chinese government. The surprise announcement on canola oil and meal raised concerns that a tariff would be applied to canola seed which is a 6MMT market for Canadian canola. The announcement led to further liquidation of long positions and with in a fortnight Canadian canola futures fell C$125/MT (18%) and EU rapeseed down €80/MT (15%).
Since mid-March prices had rebounded strongly for canola and rapeseed, reflecting the tight global stocks and a rebound in crude oil prices. This was all undone in early April, with the Trump “Liberation Day” tariffs announcements, leading to crude oil prices collapsing from US$72/barrel to below US$60/barrel, weighing on oilseed prices. However, the heavy fall in the Australian dollar against the Euro, dropping 6 cents against the Euro over the past six weeks, has seen a sharp rally in Australian canola prices to be $820/MT at the time of writing.
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