Oilseeds: September quarter 2020
Oilseed prices to remain low
The world soybean price is forecast to average US$346 per tonne in 2020–21, 6% below the 5‑year average to 2019–20. World supply continues to increase, but demand is expected to be constrained well into 2021 by COVID-19 and the ongoing effects of African swine fever.
The Australian canola price is forecast to fall by around 8% to $563 per tonne in 2020–21. World vegetable oil demand and prices bounced back after a sharp contraction at the start of the pandemic. However, prices are expected to ease in 2021 due to increasing supply offsetting a recovery in demand.
Global oilseed production to increase
World soybean production is projected to reach record levels in 2020–21, increasing by 10% to 370 million tonnes, partly due to record production in Brazil. US soybean production is also forecast to increase in 2020–21, reflecting a 10% increase in planted area and favourable seasonal conditions. This is likely to make export markets highly competitive in 2020–21.
World canola production is expected to remain unchanged in 2020–21 at around 68 million tonnes. European canola production is forecast to fall slightly in 2020–21 due to drought. Canadian canola production is expected to increase slightly but remain low compared with previous years due to an ongoing trade dispute with China impacting planting decisions.
Food demand for vegetable oils remains uncertain
The COVID-19 pandemic has generated uncertainty around world food demand for vegetable oils. This uncertainty is gradually resolving. The rapid 'snapback' of demand and prices suggests that vegetable oils are a staple and that demand for them is generally unresponsive to changes in consumer incomes. COVID-19 restrictions have reorientated food consumption away from the service sector to in-home, but this has had a limited effect on overall consumption.
Biodiesel demand to partially recover
Demand for biodiesel is expected to continue recovering into 2021 as pandemic-related travel restrictions begin to ease. Exports to the European Union accounted for 76% of Australian canola exports from 2014–15 to 2019–20 and these have increasingly been used for biodiesel production since the Renewable Energy Directive II. Crude oil prices increased in April 2020 following an OPEC+ deal to restrict production, making biodiesel more competitive. However, biodiesel consumption is unlikely to return to pre-pandemic levels in 2020–21 because of ongoing travel restrictions and lower levels of economic activity and incomes.
Livestock feed use to increase
Protein meal use for livestock feed is expected to continue to recover in 2020–21 as China's pig numbers rebuild after African swine fever outbreaks. This is expected to lift soybean and canola demand. The COVID-19 pandemic has constrained growth in the otherwise strong global demand for meat (see Sheep meat and Beef and veal).
China imported record volumes of soybeans from Brazil between January and July 2020, peaking with a monthly record in June. This was assisted by a weak Brazilian real. Brazilian soybeans have traded at a premium compared with US soybeans since May 2020. This is when the Brazilian harvest started winding up. The new US marketing year began in September. In 2020–21 Chinese demand is projected to shift back from Brazilian to US soybeans leading to a recovery in US exports.
The temporary closure of some US abattoirs due to COVID-19 has increased demand for meal to feed a backlog of animals ready for slaughter. The backlog could take some time to clear as processing facilities reduce slaughter rates to adapt to COVID-19. As a result, higher feed demand is likely to persist. At the same time, reduced US exports to China have led to a greater soybean crush in the United States because soymeal was redirected to the domestic livestock industry. This increase in the domestic crush of soybeans has offset a fall in the supply of protein meal from other sources. Reduced transport activity has reduced the supply of grain-based protein by-products from ethanol production.
In Australia, soymeal imports remain an important stockfeed, particularly for the poultry industry. Soymeal is a preferred ingredient in chicken feed because of its high protein content. Historically, Australian soymeal imports have been sourced from Argentina. Australia is now also importing soymeal from the United States following disruptions to the largest processing plant in Argentina and reduced overall supply from Argentina due to an increase in export taxes. Domestic poultry consumption is stabilising following an initial surge in demand at the start of the pandemic. This is expected to result in domestic feed use returning to more normal levels in 2020–21.
Australian canola to maintain price premium
Australian canola is expected to retain its international price premium over Canadian canola in 2020–21. European demand for canola from all sources was boosted by a revision to the Renewable Energy Directive from 1 January 2018. The revision was designed to ensure that the feedstocks used to produce biodiesel meet acceptable lifecycle greenhouse gas emissions. Within this market, Australian canola attracts a premium because of the demand for non-genetically modified meal in Europe's dairy industry. The price gap was compounded in 2018 and 2019 by large crops in Canada, and in 2019 by a trade dispute between Canada and China. The COVID-19 pandemic appears to have had very little effect on the gap between Canadian and Australian prices.
Australian canola production is forecast to increase to 3.4 million tonnes in 2020–21, 4% above the 10-year average, reflecting improved seasonal conditions (see Seasonal conditions). The area planted to canola in the autumn of 2020 increased by 32% from the previous year, largely due to increases in Western Australia and New South Wales. In New South Wales, the area planted to canola has more than doubled compared with the area planted in 2019–20.
Australian canola exports are forecast to increase by 42% to 2.4 million tonnes in 2020–21 in line with an increase in production. Australian and Canadian canola are expected to compete strongly in the drought-affected European market. Australian canola is expected to recapture market share lost to Canada when production fell in 2018 and 2019.
Opportunities and challenges
EU biodiesel demand presenting downside pricing risk
The Australian canola industry is likely to face intensifying competition in the European biodiesel market because price premiums will provide an incentive for producers of other feedstocks to achieve the necessary greenhouse gas emissions thresholds. Canola oil faces competition from used cooking oils but future competition could come from expansion of other GM-free oilseed crops. Emissions thresholds of this kind are typically tightened by regulators over time to promote continual improvement. Continued innovation should help Australia to maintain its competitive advantage, supported by the science that helped to create this market advantage.
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