MARKET WIREGETTING TO THE POINTY END

Local Market Update

Local conditions continue to be variable across the country, but all markets have responded to the sharp decline in the AUD and tightening global canola supplies.

WA: WA prices lifted $25 to hit a high mark of $615 FIS for non-GM canola. The currency and global conditions are helping push prices higher, and with an absence of substantial rain also keeping farmer selling limited, we have seen prices firm as a result. European and Ukrainian conditions didn’t allow crop production to reach the pre-harvest highs and with recent heat in Canada, yield potential has declined, in what is an extremely variable crop this year. GM spreads continue to remain wide and definition in the market is limited. However, we are starting to see more old-crop interest in the east coast and we suspect with current pricing, it is only a matter of time before China realises that its run with Canada is being left too late and they will start to look at taking some decent volumes of new crop from Australia.

NSW/VIC: East coast markets have seen a kick in line with the rest of the market. As a result we are seeing some more trans-shipment business being declared on the lineups and a genuinely renewed interest from feed consumers, container exporters and crushers to pick up some old season supplies. June exports showed a lift in container exports and we see more enquiry for Aug/Sep at the moment. So whilst it seems there was a greater supply available to the market prior to last harvest, we may finally be seeing this tightness come to fruition. New crop prices in NSW have lifted to $620 port, with Geelong at $590, both up $15-20 from the July lows. GM discounts remain strong and seem to be at export parity and full carry. Whilst conditions in VIC are generally good, the CNSW crop continues to go backwards and SNSW does not have a lot of sub-soil moisture.

Global Market Update

Politics took the front stage yet again in the last two weeks, with the uncertainties around the US-China trade negotiations now leaning further on sentiment and what it means for their respective economies (and what it means for the global economy, for that matter). Currency and equity markets have been in turmoil, with the ongoing flavour of the soybean market being dictated by the latest tweet that hits the wires. Unfortunately, this uncertainty is here to stay for the short term.

The USDA published a WASDE report, including re-survey of area planted, that caught the market by surprise. This, in particular, affected the corn market (which suffered a second blow thanks to more RIN exemptions being released to the market – meaning less demand for ethanol and corn), but it also had some impact on the bean market, and the jury is still out on these figures, at least partially, anyway.

Back to canola – the EU harvest is underway and early reports of low oil content continue. We are waiting to see how the balance of the Ukrainian crop ends up and how China wants to play in this market as it continues to be denied access from Canada….at least partially, anyway. The caveat China has at the moment is that they will impose a maximum 1% tax admix from companies that are not “banned”, so we are starting to see companies push hard to meet this spec given the large rewards and margins at stake. We will continue to see a drip feed of canola from Canada to China, probably leaving us with a ~2MMT program for the year and a remaining big hole in China import demand.

CASE STUDY – Getting to the Pointy EndWe are getting to the pointy end of the season and marketing windows around the world. What can we expect and what impact will it have on me?

1) China and Europe are about to declare their handsWe start to figure out now how much supply Europe has (domestically, from Ukraine, and from Australia), plus we start to see how the sustainability factor plays out in Canada. This means the game of poker for the big consumers in China and Europe is about to lift its stake. If China wants to make a play on Australian seed, conceding that Canadian is not likely to be available in full style, and that it does have a degree of inelastic food and meal demand in China, then it needs to start doing it soon before Europe take the lions share leaving China without a chair when the music stops. If China want a seat at the table, then this is supportive for Australian basis and GM spreads.

2) How realistic is the Canada – EU flow and can it get to 2MMT?The results of the recent Canadian crop tour showed canola production holding steady. Since then we have seen a run of hot weather that likely damaged yields, in what is a hugely varied season. Areas of Northern Alberta are looking good whilst the southern parts are well below average, and this theme continues across the provinces. The market seems to think around 1MMT, maybe a touch less, has been booked from Canada to Europe. In Canada, the farmer sees two main companies setting up a sustainable supply chain but it’s not the whole industry yet. Farmers are not seeing price premiums and haven’t completed a tonne of paperwork yet, so it should happen, but will it? The jury is definitely still out here. If it doesn’t come as easily as what the market thinks it will today, then Matif vs. WPG premiums remain high and that helps Australian values. Without China buying Australian seed then that would be seen to be bearish GM spreads. However, given where they are today, and that they are competitive to Canada, it should provide a floor and Europe should step up and close that spread if they can’t get sustainable Canadian seed in style like they expect to be able to get today.

GM CANOLA DATA DASHBOARD

EU-CHINA PRICES (A$ TRACK EQ.) KWINANA GM SPREAD

2019/20 EXPORT MATRIX (‘000MT) GEELONG/KWINANA PRICE

PRODUCTION MATRIX TOTAL CANOLA ESTIMATES

GM CANOLA MARKET REPORT

GM SITE BID SHEET

GM PORT BID SHEET

NB* ROBE 2019/20 Nov/Dec Delivery