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Australian canola plantings to drop in 2013: Rabobank report

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Leading agribusiness banking specialist, Rabobank expects canola plantings to drop this coming season. The bullish price outlook for oilseeds is however, expected to drive the increase in Australian canola production over the long term.

Rabobank, in a recently-released report, ‘Canola Contraction’ attributes the slowdown in canola production next year to the increasing competitiveness of grain crops combined with a significantly drier soil moisture profile. Report author, Rabobank senior analyst grains and oilseeds, Graydon Chong says that Australia’s planted canola area is expected to decline by up to 10% in 2013/14 to 2.0-2.1 million hectares.

Mr Chong observed that gross margin returns and favourable planting conditions for canola over the past two seasons had taken some acreage from wheat and barley.

He expects farmers, particularly those looking to forward market their 2013/14 crop, to delay next year’s planting decisions for as long as possible as they evaluate the numbers for different crops. The tight balance sheet for oilseeds will also ensure canola price is very responsive to production shocks, with the market especially driven by the status of the South American soybean crop and the availability of exports.

Highlights of Rabobank’s ‘Canola Contraction’ report:

  • Spike in grain prices since mid-2012 narrows spread between wheat and canola prices, with wheat increasing in competitiveness on a gross margin basis
  • Dry weather during winter and spring has resulted in deficient sub-soil moisture levels across most cropping regions
  • Farmers likely to plant wheat and barley instead of canola without significant rains before the critical decision-making period in March/April
  • Canola production expected to increase in the longer term on the back of strong demand fundamentals including rising food consumption and the biofuel industry
  • Increasing demand for edible oils in developing economies due to rising incomes and affordability is the biggest driver of the oilseed market
  • Opportunities for Australian canola due to demand from Asian markets, thanks to geographical proximity
  • Biofuel industry has the potential to dramatically affect canola demand and subsequently Australian domestic prices in the future
  • Over 50% of Australian canola exported to EU for use in biofuel
  • Biofuel industry impact on Australian canola prices based on renewable energy mandates in the EU and US

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