Oilseeds: June quarter 2020

Emily Dahl

Oilseed prices to fall, reflecting constrained global demand and high production. The world canola price is forecast to average US$362 per tonne in 2020–21.

Weak biodiesel demand to constrain oilseed prices

World oilseed prices are forecast to fall in 2020–21. Increased supplies of crude oil and COVID-19–related lockdowns and travel restrictions have resulted in historically low crude oil prices. This has led to substitution away from vegetable oils and falling biodiesel consumption.

Crude oil and vegetable oil export prices, July 2015 to June 2021
The steep decline in crude oil prices has put downward pressure on vegetable oil prices as biodiesel demand contracts.
f ABARES forecast.
Sources: CME group; IGC; US Energy Information Administration

Crude oil prices are forecast to remain low in 2020–21, constraining global biodiesel demand. This is expected to continue to place considerable downward pressure on world vegetable oil prices in 2020–21 and result in lower world oilseed prices.

Global demand for protein meal has remained weak in 2019–20 as the impact of African swine fever continues to constrain feed consumption in the Chinese pig industry. Feed demand is expected to begin to recover in 2020–21 due to the expansion of pig herds in China and increases in pork production elsewhere. However, this will not be enough to offset the impact of lower oil prices on oilseed prices.

The world soybean price is forecast to average US$344 per tonne in 2020–21, 6% below the 5-year average of US$367 per tonne. Global canola prices are also forecast to fall in 2020–21 due to constrained global import demand. The world canola price is forecast to average US$362 per tonne in 2020–21, 9% below the 5-year average of US$397 per tonne.

World oilseed production to increase

Global soybean production is forecast to increase in 2020–21, largely due to increased production in the United States and Brazil. This is likely to result in world soybean supplies reaching record levels. Brazilian soybean production is forecast to increase to record levels in 2020–21 because of an expansion in area planted. US soybean production is forecast to partly rebound in 2020–21, with a 10% increase in area planted. However, it will still be low compared with previous years. Increased planting is expected to be encouraged by a partial recovery in Chinese import demand as the impact of African swine fever on feed consumption begins to fade. Plantings in the United States are also expected to benefit from the signing of the phase one agreement between the United States and China.

Global canola production is forecast to increase marginally in 2020–21, assuming production increases in Australia and Ukraine. Canadian canola production is forecast to decline in 2020–21 as Canadian farmers switch to alternative crops such as wheat and coarse grains in response to Chinese access restrictions on Canadian canola.

In 2019–20 drought conditions in the 2 major palm oil–producing countries, Indonesia and Malaysia, reduced global palm oil supply. Malaysian palm oil production is expected to increase in 2020–21, assuming favourable growing conditions. In Indonesia, palm oil production is forecast to increase due to an increase in area harvested. Palm oil prices are projected to decrease in 2020–21, reflecting the increase in global supply and weaker import demand.

Chinese demand affecting global soybean trade

Lower import demand as a result of macroeconomic shocks is set to reduce global oilseed trade. US and Brazilian soybean prices have been converging since January 2020. This coincides with the finalisation of the phase one trade deal between the United States and China. China has granted tariff exemptions for US soybean imports, but US trade data indicates that the value of US soybean exports to China was down by 40% between January and March 2020 compared with the same time last year.

Soybeans are usually the biggest agricultural export from the United States to China. The drop in the value of US exports comes at a time when China has agreed to purchase an additional $12.5 billion in agricultural goods in 2020 as part of the phase one trade deal. The macroeconomic shock from COVID-19 is likely to jeopardise China's ability to meet purchasing targets.

Brazilian exports of soybeans to China have increased, reaching record levels in April. Favourable growing conditions in Brazil's north have increased the supply of soybeans, bringing prices down closer to US prices. A devaluation of the Brazilian real has also boosted competitiveness. An increase in Brazil's production and exports is likely to more than offset an expected fall in Argentina's exports as a result of the Argentine Government's new export tax.

Australian canola production and stocks to increase

Australian canola production is forecast to rise in 2020–21 to 3.2 million tonnes. The winter cropping season has begun well in New South Wales, Victoria and parts of South Australia. A favourable forecast for winter rainfall is expected to result in an increase in yields. Production is expected to return to around the 10-year average to 2018–19, reflecting the forecast increase in planted area and an expected increase in yields.

Following a small Australian crop in 2019–20, domestic stocks are significantly lower than average in the lead-up to the next harvest. In 2020–21 Australian canola stocks are forecast to increase to average levels. Export volumes are also forecast to increase as production increases. Chinese trade restrictions on Canadian canola continue to boost import demand for Australian canola.

Price premium for Australian canola projected to continue

Canadian canola prices (ABARES world indicator price) remain lower than other canola export prices following the Chinese Government's decision in March 2019 to impose restrictions on the 2 largest Canadian canola exporters. As of 31 March 2020, China is permitting limited Canadian canola imports to continue, but it has reduced the allowance of impurities to less than 1%.

Given the tightened restrictions on Canadian canola imports, Australia is expected to maintain a price premium over Canadian canola in 2020–21 as China re-emerges as a major market for Australian canola. The price premium for Australian canola relative to Canadian canola is expected to be lower than it was in 2019–20 because of a forecast decline in Canadian canola production in 2020–21

Canola export prices, 1 January 2018 to 29 May 2020
Source: IGC

Security of feed supplies for the Australian poultry industry

Imports of soybean meal play a vital role in the Australian supply of stockfeed, especially for poultry. Soybean meal is an essential ingredient of chicken feed because of its high protein content. Domestically grown and processed canola meal is a less desirable substitute because it is lower in protein and higher in energy.

Most of the soybean meal imported into Australia is supplied by Argentina. In March 2020 the Argentine Government announced an increase in taxes on selected agricultural exports, including soybean products (seed, oil and meal). The increase in export tariffs has made it less attractive for Argentine exporters to export soybean products. COVID-19–related disruptions to the Argentine supply chain and the recent closure of a soy processing plant in Argentina have also raised concerns over the Australian poultry industry's reliance on Argentine soymeal imports.

This has prompted the Australian feed industry to diversify sources. A new import permit allowing soymeal to be sourced from a US soy processing plant is expected to reduce the reliance on Argentine imports and mitigate the risk to Australia's supply of soymeal. This will improve feed security for the poultry industry. Domestic poultry consumption is likely to normalise in the short term following an initial surge in demand due to COVID-19 restrictions. This will see feed use return to more normal levels

Opportunities and challenges

Weak biodiesel demand driving uncertainty in global oilseed demand

In recent years, a substantial share of Australian canola exports to Europe has been used to produce biodiesel. Crude oil prices are forecast to remain low in 2020–21. This is expected to cause biodiesel demand to fall in the European Union and introduce considerable downside uncertainty to global oilseed demand. Australian canola is likely to face strong competition in the European market in 2020–21.

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Oilseeds outlook – June 2020 PDF 4 1.2 MB
Agricultural commodities: June quarter 2020 - Commodities - data tables XLS 12 186 KB
Agricultural commodities: June quarter 2020 - Statistics - data tables XLS 32 592 KB

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Last reviewed: 16 June 2020
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