Canola prices could still have upside even after the considerable rally to date, according to market information group, ProFarmer Australia.
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ProFarmer analyst Dick Benson says based on current information, the odds favour stronger prices as dry conditions continue in the eastern States and combined production in NSW and Victoria slips below 550,000 tonnes.
“While there has been a spectacular rally in the canola price, from A$400 (US$) per tonne to over A$520 per tonne, there is still potential upside if the Australian crop continues to get smaller,” Benson said.
“Victoria and NSW require a total of 450,000 tonnes of seed for crush. As the margin between production and crush requirements gets smaller, the canola price could move from the current export values to a higher import parity basis.”
The Australian Bureau of Agricultural and Resource Economics crop production estimate incorporates a safe margin over crushing requirements in its August crop estimate.
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By GlobalData“The crop has slipped considerably since then, and with no significant rain on the horizon in NSW and Victoria, safe cropping areas may soon experience potentially large yield declines,” he said.
“The potential is for the price to gain a lot more strength although this may be moderated if Winnipeg futures fall and the Australian dollar falls.”
Canola could be brought in from South Australia or Western Australia but there is a higher cost for this type of market substitution.
“In practical terms it may be a good time to wash out canola contracts where delivery will not be possible,” Benson said.
