Oilseeds: March quarter 2021

Emily Dahl and Rohan Nelson

Oilseed prices supported by global demand outstripping supply. The world canola price is expected to increase by 2% to US$491 per tonne in 2021–22.

Recovering demand driving world oilseed prices

Oilseed prices are forecast to remain strong in 2021–22 due to global demand outstripping supply. Chinese feed demand is expected to continue recovering into 2021–22 as China's pig industry rebuilds following outbreaks of African swine fever (ASF). Feed demand is likely to be the main driver within the oilseeds complex over the short term.

The world soybean indicator price is forecast to average slightly higher at US$474 per tonne in 2021–22, up from US$463 per tonne in 2020–21. The world canola price is expected to average US$491 per tonne in 2021–22, 19% above the 5-year average to 2020–21 of US$415 per tonne. The export price of Australian canola in 2021–22 is expected to remain largely unchanged from the previous year.

Over the medium term to 2025–26, global economic recovery and increasing incomes will underpin strengthening demand for oilseeds, particularly in Asia. Growth in demand for biodiesel is expected to continue as economies recover from the impact of COVID-19 related restrictions. Prices are expected to ease gradually (in real terms) over the projection period due to increasing supply offsetting the recovery in demand for feed and biodiesel.

Medium-term scenarios for forecasts

Medium-term forecasts from 2022–23 to 2025–26 for Australian oilseeds are based on the average outcomes of 4 possible seasonal climate scenarios. A very dry season in the wheat-sheep zone is likely to occur in one of the 4 years. Each scenario places this dry season in a different year, with other years assumed to receive rainfall of around deciles 3 to 4. For a more detailed explanation see the Agricultural overview.

The range of outcomes forecast to result from each scenario are then averaged. Unless otherwise indicated, these average forecasts – or their ranges – are discussed in this note.

Upside and downside scenarios are also considered. The upside scenario combines a faster economic recovery from the COVID-19 pandemic with another high rainfall year in 2021–22. A very dry year is still assumed in 2022–23. Because it follows an assumed wetter year, negative effects on production are reduced. The downside scenario combines a slower than expected economic recovery with very dry years in 2021–22 and 2025–26.
Oilseed export prices, July 2015 to June 2026
Following an initial drop in oilseed prices in March 2020 associated with COVID-19 restrictions, oilseed prices increased strongly, reaching multi-year highs at the end of 2020.
f ABARES forecast. z ABARES projection.
Source: International Grains Council

Reduced world stocks leading to higher soybean prices

Higher world soybean consumption is likely to more than offset the rise in world soybean supply. US soybean ending stocks are expected to fall to 3.3 million tonnes in 2020–21, down from 25 million tonnes in 2018–19. In the short term, continued strong import demand from China is expected to result in the third consecutive drop in the world soybean stocks-to-use ratio to 22%. This is 13% below the 10-year average to 2020–21 and 31% below the high of 2018–19. This low stocks-to-use ratio will support prices into 2021–22. Over the medium term to 2025–26, supply increases are expected to result in stock rebuilding in major producing countries. The world soybean stocks-to-use ratio is expected to rise steadily from 2022–23.

Record soybean production lifts global oilseed supply

Global soybean production is expected to rebound to 361 million tonnes in 2020–21 and reach record levels over the medium term. Despite unfavourable conditions in some key growing regions, Brazilian soybean production is on course to reach record output of 133 million tonnes in 2020–21. However, soybean production in Argentina is expected to fall slightly to 48 million tonnes in 2020–21 due to dry conditions associated with the current La Niña event.

US soybean production is projected to continue recovering over the short term. This follows a 20% fall in production in 2019–20 as US producers responded to lower Chinese import demand stemming from the ongoing trade dispute with China and the outbreak of ASF. The outlook for US soybean production is based on current farm support measures in the United States. Any changes to these measures are likely to change the incentives determining the split between soybean and corn production.

Strong international prices are likely to influence planting intentions, leading to area expansion in 2021–22, especially in the 3 major producing countries Brazil, Argentina and the United States. Assuming average yields, world soybean production is projected to increase by 5% to around 379 million tonnes in 2021–22. Growth in world production is then likely to slow for the remainder of the projection period. Yields are assumed to continue to trend upwards over the medium term because of the adoption of better practices and continued closure of yield gaps in emerging production regions.

World soybean supply, consumption and stocks-to-use ratio, 2015–16 to 2025–26
World soybean production is forecast to increase to 411 million tonnes in 2025–26. The stocks-to-use ratio is expected to gradually increase, reflecting an increase in world soybean supply.
f ABARES forecast. z ABARES projection.
Sources: International Grains Council; US Department of Agriculture

Canadian canola production to boost global supplies

Canadian canola production is expected to rebound in 2021–22, increasing by 5% to almost 20 million tonnes. Canola supply in the European Union is likely to remain low due to persistent dryness in major growing regions. In the short term, world demand for canola is expected to outpace supply, leading to reductions in stocks and supporting prices into 2021–22. Over the medium term to 2025–26, world stocks are expected to increase as supply responds to higher prices.

Growth in food demand for vegetable oils to remain stable

World food demand for vegetable oils is expected to rise by 3% to 155 million tonnes in 2020–21, and gradually increase over the medium term. This is mainly due to rising demand in Asian markets. Increased consumption of soybean oil and palm oil in the food sector will likely continue to contribute to growing demand for vegetable oils. Despite a downturn in hospitality sectors around the world, COVID-19 related restrictions have not had significant adverse effects on world consumption of vegetable oils. This suggests that vegetable oils are a staple, the demand for which is relatively unresponsive to changes in consumer incomes. Food demand for vegetable oils is therefore expected to continue increasing in line with population growth and urbanisation.

Biodiesel demand to gradually recover

Industrial consumption of vegetable oils is expected to increase by 2% to 52 million tonnes in 2020–21. Demand for biodiesel is forecast to continue recovering into 2021–22 and over the medium term as COVID-19 is gradually brought under control and pandemic-related travel restrictions begin to ease. However, the recovery in biodiesel demand could be delayed because of reduced demand for transportation fuel tied to further COVID-19 related lockdowns in Europe. Lower vegetable oil stocks are likely to support prices into 2021–22. Crude oil prices continue to recover after a sharp contraction at the start of the pandemic. The rebound in prices follows the April 2020 OPEC Plus deal to restrict production of crude oil, making biodiesel more competitive. However, crude oil prices are yet to return to pre-pandemic levels and are expected to average around US$50 per barrel over the medium term (see Economic overview ).

Biodiesel mandates in Indonesia and Malaysia are a key determinant of biodiesel production sourced from palm oil. In both countries, plans to increase the blend rates for biodiesel were recently delayed due to COVID-19 related restrictions. Blend rates are still expected to increase in the next 5 years, with the 20% mandate in Malaysia delayed until early 2022 and the 40% mandate in Indonesia delayed to the end of 2022. Industrial consumption of palm oil in Indonesia and Malaysia is likely to increase in line with increases in biodiesel production targets.

Livestock feed use boosted by Chinese feed demand

Higher use of protein meal for stockfeed is expected to boost demand for soybeans and canola. Protein meal use for livestock feed is expected to increase by 3% to 347 million tonnes in 2020–21. The Chinese pig industry's efforts to contain ASF and rebuild pig herds have driven growth in feed demand. Structural changes towards large-scale pig farming have increased the use of high-protein feeds, replacing traditional small-scale farming that uses food waste for livestock feed. The expanding poultry sector has also contributed to the growth of Chinese feed demand. Over the medium term, China is expected to lead global feed demand, with strong import demand driving global soybean trade.

Chinese pork production is expected to begin recovering in 2021 and steadily increase over the medium term. According to the latest US Department of Agriculture forecasts (revised in January 2021), Chinese pork production is estimated to have fallen from 54 million tonnes in 2018 to a low of 38 million tonnes in 2020 and is likely to partially rebound to 44 million tonnes in 2021.

Chinese pork production, 2010 to 2021
Source: US Department of Agriculture

Chinese soybean imports are expected to surpass pre-ASF levels in the short term (increasing to 100 million tonnes in 2020–21) and increase steadily over the medium term. This includes increased Chinese imports of US soybeans, with large purchases by China projected to continue in 2021. This suggests China is likely to meet its purchasing targets for US soybeans, negotiated as part of the phase one trade deal with the United States. These purchases will support increased US soybean production and exports over the projection period. US soybean exports are expected to increase by 34% to 61 million tonnes in 2020–21.

Australian exports to recover as supply increases

Australian canola production is forecast to increase by 74% to 4.1 million tonnes in 2020–21, 23% above the 10-year average to 2019–20. This increase reflects improved seasonal conditions, particularly across eastern cropping regions and a better than expected harvest in Western Australia (see Seasonal conditions). Following 3 consecutive years of drought-affected production, the domestic price of Australian canola is forecast to reach parity with the export price in 2020–21. With continued high international prices, domestic production and export values are expected to increase. Australian canola exports are expected to recover strongly in the 2020–21 marketing year, increasing by 91% to 2.9 million tonnes.

The area planted to canola is likely to increase in 2021–22 due to stored soil moisture following above average summer rainfall. Over the medium term, the area planted to canola is expected to remain around 10 to 15% of all winter crops, ranging from 2.4 to 2.5 million hectares, subject to soil moisture variability. Year-on-year changes in area over the outlook period will reflect grower constraints related to crop rotations and rainfall in time for planting. Canola production in 2021–22 is likely to be lower than in 2020–21 and slightly higher than average at around 3.5 million tonnes as stored soil moisture supports an increase in planted area. Over the remaining 4 years of the outlook period, projections for Australian canola assume that seasonal conditions allow yields to reach the levels that are achieved with rainfall of deciles 3 to 4 (see Seasonal conditions). Production outcomes could range from 2.8 to 3.5 million tonnes during the projection period. The value and volume of Australian canola exports are expected to remain high against a backdrop of stronger international demand for biofuels as economies recover from the impacts of COVID-19 related restrictions (see Economic overview).

In the upside scenario, another year of favourable growing conditions in 2021–22 will ensure that Australian canola production stays at above average levels. Continued La Niña conditions would likely result in lower yields in South America and some key cropping regions in the United States, leading to even tighter world soybean supplies that would further boost oilseed prices. In this scenario, COVID-19 is brought under control faster than in the forecast, causing demand to outpace supply and leading to higher export prices. These assumptions would lead to increases in Australian canola production and exports, in both volume and value.

The downside scenario assumes that less favourable seasonal conditions in 2021–22 and 2025–26 would lead to lower Australian canola production and exports in those years. Lower production in 2021–22 is unlikely to alter the domestic price significantly because world stocks-to-use ratios across the oilseeds complex would be expected to fall for another year. However, global supplies are expected to outweigh demand by 2025–26, leading to lower international prices. Given the downside macroeconomic assumptions, demand is expected to remain relatively subdued over the projection period. Biodiesel demand would likely fall because ongoing travel restrictions would significantly affect demand for fuel. Oilseed prices would weaken as a result, further reducing the volume and value of Australia's canola exports.

Australian canola production, 2010–11 to 2025–26
Australian canola production is expected to increase by 74% to 4.1 million tonnes in 2020–21. According to the baseline projections, Australian canola production is likely to range from 2.8 to 3.5 million tonnes over the outlook period.
f ABARES forecast. s ABARES estimate. z ABARES projection.
Sources: ABARES; ABS

The past future of Australian canola production

In 2001 ABARES released a report on the Future of canola production in Australia. It is interesting to review these long-term forecasts 20 years after they were made, and 10 years after the forecast period.

Australian canola production expanded rapidly in the 1990s from very low levels, leading observers to question whether the same pace of expansion was likely to be maintained into the future. Strong global demand for canola oil during the 1990s had driven high world prices, which Australia's competitive industry was able to take advantage of. Prices were projected to stabilise out to 2010, as supply in Australia and Canada responded.

ABARES 2001 projections of canola production were correct about the level that would be reached by 2010, but not the pathway by which this level would be reached. Droughts in 2002–03 and 2006–07 (with 3 years of, at best, average seasonal conditions in between) coincided with a range of agronomic issues affecting the production of this drought-sensitive crop. From the late 2000s onwards, a stepwise boost to Australian canola production came from the widespread adoption of genetically modified varieties in Western Australia and New South Wales.

In 2021 canola oil continues to contribute around 15% of global vegetable oil consumption, the same level as in the 1990s. Perhaps the most significant change since 2001 has been the development of global biofuel markets, especially in the European Union. The potential for biofuel demand to become significant was recognised in 2001, but it was not built into ABARES model-based forecasts at that time.

Australian canola production and projections, 1990–1991 to 2025–26
Australian canola production increased rapidly in the 1990s before slowing down during the drought years of 2002-03 and 2006-07. In 2000 ABARES forecast that production would continue to expand, and this was realised in the late 2000s when favourable seasonal conditions returned. Genetically modified varieties led to a much higher base level of production from around 2010 onwards.
f ABARES forecast. s ABARES estimate. z ABARES projection.
Sources: ABARES; ABS

Opportunities and challenges

Uncertainty surrounding canola trade

The European Union is a significant export market for Australian canola. EU demand for canola is based on the Renewable Energy Directive that ensures feedstocks used to produce biodiesel meet lifecycle emissions thresholds. Despite reduced growth in EU biodiesel demand due to pandemic-related travel restrictions, lower canola production in the European Union is expected to boost import demand.

The European Union is also a significant importer of Canadian canola. Australian canola attracted a premium over Canadian canola from July 2018 to December 2020. This premium was tied to the secondary value of Australian canola as non-GM meal in Europe's dairy industry. Low canola production in Australia, large crops in Canada and a trade dispute between Canada and China also contributed to the price gap. As of December 2020, Australian canola is no longer trading at a premium over Canadian canola. The recent change in the price gap indicates that tighter supplies in Canada and strong demand are supporting a sharp increase in the Canadian canola price. The current higher price for Canadian canola could improve the likelihood of Australian canola regaining market share in the European Union, allowing Australian canola exports to be more competitive in international markets.

Canadian canola stocks are expected to remain tight until the next harvest commences in May. Increased canola production in Canada could result in Australian canola again trading at a premium over Canadian canola. Hence, the increase in competitiveness of Australian canola could be short-lived. Continued innovation should help ensure Australian canola producers maintain their competitive advantage and access to international markets.


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Agricultural commodities: March quarter 2021 - Report PDF 80 8.04 MB
Agricultural commodities: March quarter 2021 - Commodities - data tables XLS 12 209 KB
Agricultural commodities: March quarter 2021 - Statistics - data tables XLS 32 601 KB

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Last reviewed: 10 March 2021
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