Australian canola prices to stay bullish

By Dominique Patton

- Last updated on GMT

Australian foodmakers, already facing higher wheat prices, can
expect to pay higher prices for canola oil for several months, as
drought leaves the country in short supply.

Normally the world's second biggest canola producer, and a significant exporter, Australia will need to import the oilseed this year, after a drought leaves it with one of its worst crops on record. "We normally produce between 1.4 and 1.8 million tonnes. Our last estimate for this year is only 421,000 tonnes,"​ said Rosemary Richards, executive director of the Australian Oilseeds Federation. The drought has been particularly damaging to crops on the east coast where the majority of the crushing and refining capacity is located. In New South Wales, which produced 250,000 tonnes of the oilseed last year, this year's crop is only 35,000 tonnes. When the harvest in Victoria is completed, total crop estimate could edge down even further, Richards told "Victoria was looking okay until the last week of October when we had some very late frosts, and the frost damage is hard to predict,"​ she said. As a result, oil is now trading at A$559 per tonne at Melbourne port, compared with around $325 for last year's price. Cargrill's prices for delivery in January 2008 are down to $455 but still strong. "We expect prices to stay reasonably firm for the 07-08 season,"​ said Richards. "It depends on whether we get an early break [rains] to the season. In the last couple of years, we haven't planted until well into June and canola doesn't like this. If we can plant in May though, things may improve.​" Canola, a relatively new crop in Australia, has seen strong growth in use, and the food industry now consumes about 130,000 tonnes per year. Demand has been boosted in the last two years by interest in healthier fat, with canola increasingly replacing other oils in foodservice and processed foods. A new variant has also been developed with better functionality in food that is helping to increase demand. "We have done a lot of work to promote the health benefits of canola, and also sunflower oil, and we're now seeing and good support from the food industry. So it's pretty frustrating if we now have to import,"​ said Richards. Jeoff Barker, manager of Cargill Australia's oilseeds business, the country's largest canola crusher, confirmed that there would definitely be some imports this year. "We do have a shortage now and will have to import seeds,"​ he said, adding that it is difficult to estimate how much will be needed. Foodmakers may look for alternatives to canola but these too will have to be imported, and foodmakers may be reluctant to switch back to other oils after promoting the healthier canola. Australia's traditional export markets, particularly Japan, its biggest, but also Pakistan and China, will also need to source canola from elsewhere this year. China is trying to increase domestic canola output but its crop has suffered from wet weather conditions this year.

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