The world oilseeds indicator price (soybeans, cif, Rotterdam) is forecast to increase by 4 per cent in 2006-07. Although total oilseeds production is expected to fall in 2006-07, record opening season stocks mean that total supplies are forecast to remain largely unchanged. Continued growth in demand for oilseeds and oilseed products will therefore provide the main impetus for higher prices in the year ahead.
Consistent with the increase in world soybean prices, canola prices in Australia are forecast to increase in 2006-07. Higher Australian prices are expected to flow from increased export demand, high domestic demand and lower Australian production. In 2006-07 the price of Australian canola is forecast to increase by 4 per cent to average $376 a tonne.
world production lower in 2006-07
Global production of oilseeds is forecast to fall in 2006-07 as production of the two major oilseeds, soybeans and canola, is forecast to fall. On average these crops account for 55 per cent and 12 per cent of total oilseed production respectively.
The area sown to soybeans in the United States, the world’s largest soybean producer, is forecast to increase in 2006-07, as growers increase areas planted at the expense of corn. In the United States, farm level costs of producing soybeans are lower than for corn. The rising cost of fuel and fertiliser is expected to be a major influence on the planting decisions of US growers. However, despite an increase in area sown to soybeans in 2006-07, US production is forecast to fall as yields are assumed to decline from the record achieved last season.
The area sown to soybeans in Brazil is forecast to fall in 2006-07 as Brazil’s soybean producers respond to the effect of two seasons of lower prices, high input costs and an appreciating Brazilian currency. The world soybean indicator price (when expressed in Brazilian currency, the real) reached a peak of R1072 a tonne in 2003-04 and since then has declined by 22 per cent and 29 per cent respectively in each of the past two years in real terms.
The price decline has left many Brazilian farmers in financial difficulties and in early April 2006, the Brazilian Government announced an emergency credit package worth nearly US$8 billion (R16.9 billion) to help farmers alleviate some of their debt. In early May an additional US$470 million (R1 billion) in emergency aid was announced. Despite these aid packages, the area sown to soybeans in Brazil is forecast to be lower. With an assumption of average yields, soybean production in Brazil is forecast to fall in 2006-07.
World canola/rapeseed production is forecast to be lower in 2006-07, as production in Canada, one of the largest producers and the world’s largest exporter, is forecast to fall. In the previous season, Canada’s canola crop yielded 1.8 tonnes per hectare, compared with a five year average of 1.4 tonnes per hectare. Assuming average seasonal conditions, yields are forecast to return closer to historical averages and canola production in Canada is forecast to decline.
demand continues to grow
Demand for oilseeds and oilseed products has been strong over the past decade, and this is forecast to continue in 2006-07. Demand for oilseed meal by the intensive livestock sector and demand for vegetable oil by the processed food sector have been major drivers of increased consumption over the past ten years. However, the growing use of vegetable oil for biodiesel production will be an increasing influence on demand. Global vegetable oil consumption is forecast to increase by 2 per cent in 2006-07.
biodiesel expanding rapidly
Biodiesel — a product derived from sources such as vegetable oils — can be used as a transport fuel and heating oil. The processing of vegetable oil into biodiesel has a one to one relationship. That is, one unit of vegetable oil will result in one unit of biodiesel. Therefore any increase in biodiesel processing capacity has the potential to increase demand for vegetable oils.
The largest two producers of biodiesel are the European Union and the United States, where significant investment and supportive government policies have been implemented. In the European Union, government policies include tax incentives and mandatory targets. Biodiesel production in the European Union increased from 1.9 million tonnes in 2004 to 3.1 million in 2005. Further growth in the EU biodiesel industry is expected, with production capacity forecast to expand from 4 million tonnes in 2005 to 6 million tonnes in 2006.
In the United States there are currently 65 operational biodiesel plants. Like the European Union, the US biodiesel industry is expected to grow rapidly. There are currently 50 biodiesel plants under construction in the United States and a further eight are expanding operations. They are all expected to be completed by June 2007.
oilseed meal demand continues to grow
Oilseed meal, a coproduct of the vegetable oil derived from the crushing of oilseeds, is used for livestock feeding. The largest consumers of oilseed meals are the European Union, China and the United States, which, between them, account for around 60 per cent of oilseed meal consumption each year. While oilseed meal consumption has been increasing in all three countries, the greatest increase in consumption has been in China. Oilseed meal consumption in that country has increased by an average of 9 per cent a year over the past decade. Increased oilseed meal consumption in China is a response to a rapidly growing livestock sector. Production of pig and poultry meat and eggs have both increased by around 40 per cent since 1995-96. These industries are large users of oilseed meal. In 2006-07, livestock production and hence demand for oilseed meal are forecast to increase further in China.
world stocks to remain high
Although stocks of oilseeds at the end of 2006-07 are forecast to be 14 million tonnes lower than at the end of the current season, they will remain relatively high. Despite the expected drawdown of stocks as consumption rises and production in 2006-07 eases, forecast stocks of 32 million tonnes will be the third highest in history.
lack of rainfall limits canola plantings in Australia
Canola has benefits in farmers’ cropping rotations as it is a good break crop to prevent the buildup of soilborne diseases. However, canola is a relatively more expensive crop to produce than wheat or barley and is more susceptible to changes in seasonal conditions.
The area sown to canola in Australia is estimated to be around 960 000 hectares in 2006-07, similar to that sown last season. The optimal planting time for canola is May. However, planting can be successfully undertaken as late as early June if subsequent seasonal conditions are favorable. But with much of the Australian grain belt remaining dry until mid-June, the opportunity to successfully plant more canola has largely passed.
In Victoria, in contrast to other states, an increased area has been planted to canola in 2006-07. Rainfall in early May provided growers with a good start and provided adequate soil moisture for planting to begin. The area sown to canola in Victoria is estimated to be up by 7 per cent to 240 000 hectares.
Total Australian canola production is forecast to fall by 3 per cent to 1.4 million tonnes in 2006-07. At this early stage, it is assumed that yields in 2006-07 will be around their historical average, at 1.45 tonnes per hectare.
canola exports to increase
Despite the expected fall in production, Australian canola exports are forecast to increase by 105 000 tonnes in 2006-07, as stocks carried over from the previous season are drawn down. The value of Australia’s canola exports is forecast to increase by 16 per cent to around A$390 million in 2006-07.
leanne lawrance | +61 2 6272 2028 | 