Dryness to snap trend of rising Aussie canola area

The trend of rising canola plantings by Australian farmers is poised to go into reverse next year, dented by drier soils already provoking "increasing" concerns over sorghum prospects, besides curtailing prospects for the ongoing wheat harvest .

Australian growers, important providers of canola for the export market, are to cut sowings of the rapeseed variant by up to 10% for 2013-14, from this season's record high of 2.2m hectares, Rabobank said.

The reduction would represent a rare pullback in plantings, which have surged from a total below 1m hectares seven years ago "as growers have been cashing in on the growing global demand for oilseeds".

However, for next season, the "strong competitiveness of alternative crops", will drive farmers to increase area of grains such as wheat, Rabobank analyst Graydon Chong said.

'Less favourable for planting'

Indeed, the average price of east coast Australian canola, compared with that of wheat, has dropped from 2.46: 1.0 in April-May to 1.66: 1.0 in October.

"The narrowing of the spread between wheat and canola has meant that wheat has become relatively more attractive on a gross margin basis," Mr Chong said, if failing to forecast likely wheat sowings for next season.

Furthermore, the relative dryness of soils compared with a year ago, when rains encouraged farmers to opt for the rapeseed, also mitigates against canola.

"As a result of dry weather throughout winter and spring 2012, without significant summer rains, the conditions in Australia are likely to be less favourable for planting canola than in 2012."

EU hiccup

The bank also cautioned over the dent to prospects for Australian canola exports to the European Union from Brussels' proposals to cap at 5% of transport energy demand the mandated inclusion of biodiesel in fuel.

"As Europe is currently the major destination for Australian canola, the proposed changes in legislation will limit the appetite for imported oilseeds in the long term.

"As a result, Australia will need access to alternate growth markets, such as China, if the industry is to continue to expand at a record pace."

'Increasingly worried'

The extent of the concerns over Australia's current sowing conditions are already being reflected in prices of sorghum, a summer-planted crop, for which futures hit Aus$290.50 a tonne in Sydney last week, the highest since February 2007.

"Local sorghum consumers are becoming increasingly worried about crop prospects because of dryness in key production regions," Luke Mathews at Commonwealth Bank of Australia said.

While futures have retreated to Aus$281.00 a tonne as of Tuesday, thanks to some rains in Queensland and New South Wales producing areas over the weekend, "a lack of forecast follow-up rain means production concerns may quickly return". 

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