Oilseed production had mixed fortunes in 2019-20, with cottonseed production down sharply compared to its major oilseed counterpart of canola, which was only down marginally. The result was output falling 9% to $143 million. Stronger regional variation and timing of drought intensity meant that Southern NSW dryland cropping systems fared slightly better than irrigated cropping for the year.
Australian East Coast demand for canola seed for crushing emanated into higher canola prices, while cottonseed prices fluctuated through the year based on the broader feed grain and hay pricing complex. COVID-19 also meant crude oil, and as a result vegetable oil markets, sharply corrected on reduced demand however, canola markets demonstrated strong resilience to the shock, supported by Chinese demand.
Another successful harvest of the Hayman soybean variety was completed in 2020, yielding large, high-protein grain destined for tofu and other soybean related product markets in Australia and overseas. The new Hayman variety has been tested at the Grafton DPI research station. DPI, in partnership with CSIRO and the Grains Research and Development Corporation (GRDC), develops new elite soybean varieties for North Coast and Australian grain growers under the Australian Soybean Breeding Program.
Oilseed production fell by 47% in 2019-20 to just 386 thousand tonnes in total, the lowest levels since 2007-08 when 264 thousand tonnes were produced 10. The largest decline was in the volume of cotton seed that was produced, which plummeted by around 70% owing to a lack of irrigation allocations.
Canola production fared better than expected, with the crop down by a relatively modest 14% to 225 thousand tonnes in 2019-20 aided by stronger yields than a year prior.
This is attributed to modestly improved year-on-year conditions in Southern NSW and widespread reports of producers making the decision to graze or bale canola crops rather than take them through to harvest 10.
Canola seed prices were well supported domestically over the course of 2019-20, with prices ending the year up by approximately 11% on the same time a year prior and sitting at approximately $664 per tonne delivered to Port Kembla 72.
The major drivers of the domestic price were reduced Australian opening stocks leading into the season, and another small harvest in 2019.
This resulted in limited exportable surplus and an ongoing detachment from the international CME futures prices 110.
Demand for NSW grown Canola was derived from Australian East Coast oilseed crushing plants looking to maintain asset utilisation, despite lower vegetable oil prices internationally as a result of COVID-19.
Australia’s canola crush was steady at an estimated 800 thousand tonnes, with the majority of this predominantly crushed on the East Coast. The crush represented around 34% of the national canola crop which is up from the 5 year moving average at 25% and with the NSW crop production down, mills were supplemented supply from Western Australia, South Australia and Victoria 138.
The value of NSW oilseed exports fell by 79% in 2019-20 to just $3.8 million and to levels not seen since the peak of the millennium drought in 2007-08. Nationally oilseed exports grew by 18% in value terms driven by exports from Victoria, demonstrating that NSW production levels were finely balanced with domestic crush requirements 94.
An oversupply of global oil production triggered by COVID-19 related travel restrictions resulted in a slump in global oil prices and indirectly impacting on global oilseed markets. Demand for crude oil and biodiesel dropped significantly in 2019-20 during the height of government-imposed lockdown measures. This led to some pressure on canola seed prices, however they have since begun to somewhat recover as measures have progressively eased 9.
Australian canola prices benefitted from a recent trade dispute where China imposed bans on Canadian Canola seed exports from the two largest Canadian export firms, Richardson International and Viterra Inc in March 2019. The ban was imposed on pest concerns, albeit under a backdrop of geopolitical tension 86. Canada is Australia’s largest canola export competitor which has led to a divergence in prices, with Australian Canola trading at a premium to Canadian canola since the ban was imposed 9.
China’s demand for soybeans was mixed in the first half of 2020, with imports of US Soybeans down by around 40% due to the economic shock related to COVID-19. This was offset by imports from Brazil which became more competitive with United States prices due to higher supply and a falling Brazilian Real 9.
Oilseed production is expected to rise sharply in 2020-21, with canola production the major contributor with an estimated 237% increase 10. Cottonseed production is directly linked to cotton lint production which is also expected to have a modest increase with some slightly improved water allocation in the Southern Murray Darling Basin, improved soil moisture and on farm storages in the Northern Basin.
Global pricing will begin to dominate local canola markets into the new crop year however, substitute oilseed supply shortages will remain the driving force. There are strong positive signs for canola prices emerging for the 2019-20 crop with Chinese canola futures trading in excess of $1000 per tonne and Australian producers will be seeking to capitalise on the favourable market, especially as Canadian suppliers facing ongoing biosecurity challenges. The strong prices are linked to expected production impacts of Malaysian palm oil as a result of the labour shortages triggered by COVID-19 people movements through Southern Asia 111. Strong demand from China is expected to be partly offset by ongoing travel restrictions of varying degrees in key European markets, which is likely to mean less demand for Australian canola for biodiesel production 9.