Once Australia finishes its harvest, there will be no more supply until Northern Hemisphere crops mature in mid-2025
CANBERRA/WINNIPEG/PARIS (Reuters) — 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.
Further gains are expected as buyers remain reluctant to switch to cheaper soybeans.
Prices hit two-year highs last month of nearly US$586 per tonne in Australia and a 21-month high of almost $580 per tonne in Europe. Multi-month peaks have also been seen in China and Canada.
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Supply is limited, with smaller harvests in most major producers. The European Union and China, the biggest buyers, have stepped up imports. Shipments to China reached record levels as the country stocks up ahead of possible tariffs on canola from Canada, its main supplier.
Rapid gains in vegetable oil markets also provided support. Malaysian palm oil futures reached a more than two-year high in November before prices dipped.
Once Australia finishes its canola harvest, 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 because 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.
Canola crops have been hit by wet weather in western Europe and dry conditions in Canada and Ukraine.
Estimates by national governments and the U.S. Department of Agriculture 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 three million tonnes less than last year, a drop of four per cent and the smallest crop since 2021. Further shrinkage is likely as analysts expect Statistics Canada to cut its estimate by around one million tonnes in its December report.
Strategie Grains said in October it expects EU crushers to use around 1.4 million tonnes less of canola and 900,000 tonnes more of soybeans during the 2024-25 season than in the previous season.
But canola imports remain strong. The EU took in 1.32 million tonnes 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 tonnes.
Ukraine has already exported well over half its harvest, according to grain traders union UGA, meaning 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.”
However, benchmark Chicago soybeans have fallen around 25 per cent this year to $360 per tonne, making them nearly $200 a tonne cheaper than canola on Europe’s Euronext exchange, the biggest discount since mid-2022.
“The canola rally is overcooked, particularly given the weight of soybeans sitting on the sidelines,” said Ole Houe, director of advisory services at IKON Commodities in Sydney.
