Late last week, Indonesia, the leading producer of palm oil, shocked global consumable oil markets by announcing an immediate ban on palm oil exports. Global oilseed prices have risen even more this year. It might be huge news for Australian canola growers, who are currently benefiting from the greatest prices on record, with prices frequently above $1000 per tonne in the last six months. While Australian markets were shut for ANZAC Day, global markets skyrocketed in response to the news from our northern neighbour. Following the news, the French MATIF index for rapeseed (canola) jumped by $A51 in the first trading session.
The world is currently grappling for edible oil supplies, with the crisis in Ukraine affecting sunflower oil availability in particular. Other countries, such as Argentina, which briefly restricted soybean exports earlier this year, are trying to shore up domestic production to avoid a spike in food inflation. This was the reasoning of Indonesian President Joko Widodo. He stated he wanted to ensure availability for domestic consumers when he announced the restriction. While various export prohibition tactics may reduce local food inflation, they will increase the worldwide problem. Already, there have been debates concerning the fuel vs. food dilemma, with some analysts advocating that the usage of vegetable oils in biofuel manufacturing be reduced to assist sustain food supply.
Andrew Whitelaw, agricultural analyst at Thomas Elder Markets, believes the ban on palm oil exports will have a significant impact on Australian canola producers, especially if it is extended into the second half of the year. “Because Indonesian palm accounts for a substantial share of global vegetable oil commerce, any impact on trade flows will result in a tighter global oil balance sheet,” Mr Whitelaw added. Mr Whitelaw claimed that the prices of canola and palm oil were highly correlated. He predicted that as palm oil supplies became increasingly scarce, vegetable oil users would turn to canola oil to make up any deficits. As the global balance sheet for vegetable oils tightens, purchasers are looking for alternatives. As a result, the elimination of palm from Indonesia benefits canola pricing.