Canola oilseed prices in Australia and Europe have risen by around 20 per cent since the start of March due to tight supply and a rally in vegetable oil markets, with further gains expected as buyers remain reluctant to switch to cheaper soybeans.
Prices have this month hit two-year highs of nearly A$900 (C$819) a metric ton in Australia and a 21-month high of almost 550 euros (C$811) a ton in Europe, with multi-month peaks also in China and Canada.
Supply is limited, with smaller harvests in most major producers. The European Union and China, the biggest buyers, have stepped up imports, with shipments to China reaching record levels as it stocks up ahead of possible tariffs on canola from Canada, its main supplier.
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Rapid gains in vegetable oil markets also provided support, with Malaysian palm oil futures reaching a more than two-year high this month before prices dipped.
Once Australia finishes its canola harvest in coming weeks there will be no more supply until northern hemisphere crops mature in mid-2025, said Vitor Pistoia, an analyst at Rabobank in Sydney.
“On the fundamentals, canola prices should go higher,” he said.
While soybean prices are near four-year lows thanks to bumper Brazilian and U.S. crops, the widening price disparity with canola has not prompted mass substitution, as soybeans have lower oil content and switching requires changes to factory settings to make oil and meal. Also, crushers have purchase and sale agreements that can’t always be quickly revamped.
“The ceiling for canola is when purchasers decide it’s too hot and they will buy something else,” Pistoia said. “We have further to go before we get there.”
While some crushers may switch, retail demand for canola oil should remain strong because many consumers prefer it over alternatives despite its higher price, said a trader at a China-based oilseed crusher.
Overcooked
Canola crops have been hit by too-wet weather in Western Europe and too-dry conditions in Canada and Ukraine.
Estimates by national governments and the USDA show production this year falling to multi-year lows in the EU, Ukraine, China, Canada and Australia. Of the major growers, only India and Russia have increased output.
Combined, those producers will harvest around 3 million metric tons less than last year, a drop of four per cent and the smallest crop since 2021, with further shrinkage likely as analysts expect Statistics Canada to cut its estimate by around a million tons in its December report.
Consultancy Strategie Grains said in October it expects EU crushers to use around 1.4 million tons less canola and 900,000 tons more soybeans during the 2024/25 season than in the previous season.
But canola imports remain strong. The EU took in 1.32 million tons of canola between July 1 and Sept. 29, up 25 per cent year-on-year, EU commission data show.
China’s July-October canola imports almost tripled from a year earlier to 2.65 million tons.
Ukraine has already exported well over half its harvest, according to grain traders union UGA, meaning that little will remain for shipping next year.
In Canada, prices will have to rise to ration demand, said Bruce Burnett, chief analyst at MarketsFarm in Winnipeg, “or we’re going to physically run out of crop.”
Benchmark Chicago soybeans Sv1, however, have fallen around 25 per cent this year to $360 a ton, making them nearly $200 a ton cheaper than canola on Europe’s Euronext exchange, the biggest discount since mid-2022.
“The canola rally is overcooked,” said Ole Houe, director of advisory services at IKON Commodities in Sydney.
“Particularly given the weight of soybeans sitting on the sidelines.”
— Reporting by Peter Hobson, Ed White and Sybille de la Hamaide; Additional reporting by Naveen Thukral, Gus Trompiz, Olga Popova, Pavel Polityuk, Rajendra Jadhav and Mei Mei Chu.
