Grain Snippet: Canola Prices Pullback Following Global Oilseed Uncertainty
South Australian 24/25 season canola prices have been trending sideways for February, with conventional canola ranging from $770/MT to $810/MT and GM canola $655/MT to $690/MT. Towards the end of the month, prices have pulled back as competition between exporters declines and shipping programs are finalised.
Adding to pressure to canola prices was the recent announcement by US President Trump that tariffs would be applied to Canadian imports including canola products. Canada produces around 19MMT of canola annually, crushing approx. 11.5MMT annually. Additionally, Canada exports 3.3MMT of canola oil and 3.6MMT of canola meal to the US. With the proposed tariffs, Canadian canola products have become more expensive in the US, resulting in lower Canadian canola prices. Canadian canola prices rallied in early February as managed funds have been short covering (buying back a sold position) and then building a long position. This short was triggered by the initial deferral of US tariffs that were due to commence on the 1st of February.
Global palm oil prices have rallied strongly through February with the timely transition by Indonesia from B35 to B40 biodiesel. B40 is the government requirement to have 40% palm oil as a component of domestic biofuel. The move sees around 2.5MMT of palm oil diverted from the export market, reducing supply and therefore supportive of prices. World vegetable oil consumption is fairly fluid, and, in most cases, consumers can pivot to other oilseeds if one type becomes too expensive. 2.5MMT of palm oil is equivalent to roughly 13MMT of soybean or 6MMT of canola seed. The Indonesian government intends to transition to B40 by 2028 which will require an additional 5MMT of palm oil.
Global soybean prices rallied from mid-December to mid-January due to fund short covering. Funds have built a short position on US soybeans following the US electing Donald Trump as president, betting that US tariffs on imports from China would result in retaliatory trade restrictions by China on US Ag commodities, potentially leading to lower soybean prices. Traders were of the view that China would pivot to South America, where Brazil is forecast to produce a record large 169MMT soybean crop, (up 16MMT y/y). Argentina was forecast to produce 52MMT of soybean, but this estimate has since been reduced to 49MMT, due to hot and dry conditions throughout January. A smaller Argentine soybean crop, and the delay in the imposition of US tariffs in China, funds unwound their net short-position into mid-January.
The harvest of the large Brazilian soybean crop had been delayed into mid-February due to wet weather; however recent dry weather has the crop harvest estimated at 35 – 38% complete in line with the 5-year average. With the early delay in harvest, exports have been slow, and China has been buying US soybeans to fill the gap. As the Brazilian harvest and exports ramp up US soybean prices have begun to trend lower.
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