Oilseeds: September quarter 2019

Nathan Pitts

In 2019-20 oilseed prices are forecast to fall by 7% to $360 per tonne. This is due to constrained Chinese demand and high North American stocks.

African swine fever to constrain oilseed prices

World oilseed prices are forecast to remain low in 2019–20. This is because feed consumption in the Chinese pig industry will be constrained following the outbreak of African swine fever in China. Chinese soybean imports generally account for over half of the global oilseed trade. This is largely due to feed demand in domestic pig and poultry industries.

There is considerable uncertainty surrounding Chinese tariffs on US soybeans, and ABARES has assumed these will continue throughout 2019–20. However, the price premium on South American soybeans relative to US soybeans is expected to be much lower than it was in 2018–19. This is primarily because Chinese demand has fallen significantly following the domestic outbreak of African swine fever.

Prices for South American and US soybeans were comparable between July 2019 and early September 2019, when South American exports are typically highest. South American prices may again rise above US prices when South American exports decline seasonally later in 2019. When this occurs, Chinese importers will have fewer alternatives to tariff-affected US soybeans.

Exports to China, January 2016 to June 2019
From May 2018 China has increased imports of Brazilian soybeans and decreased imports of US soybeans. Total import vsolumes have fallen since October 2018 due to the effects of the outbreak of African swine fever in China. Imports in June 2019 were 25% lower than in June 2018.
Sources: International Grains Council; ITC Trademap

World canola prices in 2019–20 are expected to fall due to substitution effects arising from trade restrictions on soybean imports in China and a subsequent fall in soybean prices. This has led to substitution away from canola to soybeans in major importing markets such as the European Union.

Canadian canola prices (including ABARES indicator price) have fallen as a result of the Chinese Government's decision in March 2019 to impose restrictions on imports of Canadian canola. There is significant uncertainty surrounding the duration of China’s restrictions on Canadian canola, and ABARES has assumed these will continue throughout 2019–20. As a result, Canadian canola prices are forecast to fall by more than Australian canola prices.

Poor US planting conditions to reduce global production

In 2019–20 lower US soybean production is forecast to drive down global oilseed production from record highs. In the United States, area planted to soybeans is forecast to fall due to low expected returns and unfavourably wet planting conditions across the Midwest. Conversely, South American production is forecast to remain historically high as producers respond to strong Chinese demand.

World canola production is forecast to fall due to lower production in Canada and the European Union. In Canada, area planted to canola is forecast to fall in response to lower expected returns. EU production is forecast to fall due to unfavourable planting conditions.

Canadian and US oilseed stocks are estimated to have increased significantly in 2018–19 due to low exports to China. Stocks are unlikely to return to more average levels in 2019–20 despite forecast reductions in North American production. This is likely to keep oilseed prices low.

Australian production to remain low

In 2019–20 Australian canola production is forecast to increase by 6% from low production volumes in 2018–19. Despite the increase, this production forecast is the second lowest since 2010–11.

Canola exports are forecast to increase marginally. Some shipments are likely to be diverted from the European Union to China due to Chinese trade restrictions on Canadian canola.

Opportunities and challenges

African swine fever driving uncertainty in global oilseed demand

Feed consumption in the Chinese pig industry is a major determinant of global oilseed demand. The effect of African swine fever on the global oilseeds sector was evident in 2018–19, when lower Chinese feed demand significantly reduced global oilseed prices. The implications of African swine fever for oilseeds markets is potentially significant but uncertain, making the outlook for the global oilseeds sector difficult to predict. For comprehensive ABARES analysis on how African swine fever could affect Australian agriculture, see the article on African swine fever.

Australian GM-free exports to face stronger competition

Between 2015–16 and 2017–18, 88% of Australia's mostly GM-free canola exports were sent to the European Union. These exports have attracted a slight price premium because EU consumers have historically preferred GM-free canola. However, in 2018–19 the European Union began substituting towards low-cost, predominantly GM soybeans from the United States.

In 2019–20 Australian canola is likely to face strong price competition in the EU market from GM oilseeds, particularly US soybeans and Canadian canola. This is likely to reduce Australian canola exports to the European Union and erode the premium for GM-free canola that Australia has previously received.

South Australian canola to become more competitive

In August 2019 the SA Government removed restrictions on the cultivation and transport of GM crops. A review by Professor Kym Anderson found the price premium received for GM-free canola arose from careful crop segregation rather than from the moratorium. From 2020 farmers in South Australia will have the opportunity to use GM crops to increase their international competitiveness. This leaves Tasmania as the only state with restrictions on the cultivation of all GM crops.

US production down

In 2017–18 US soybean production accounted for 20% of global oilseed production and 32% of global oilseed exports. This means US production can significantly influence the price of all oilseeds in world markets.

In 2019–20 US soybean production is forecast to fall due to unfavourable planting conditions across large areas of the Midwest. In August 2019 the US Department of Agriculture announced that producers were not able to plant a record 19.4 million acres during 2019. This primarily affected corn, soybean and wheat plantings. Further downward revisions to US production or yields present upside risks to global oilseed prices.

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Last reviewed:
17 Sep 2019