MARKET WIREIs $600 a good price?

GM CANOLA DATA DASHBOARD

EU-CHINA PRICES (A$ TRACK EQ.) KWINANA GM SPREAD ($AUD)

2019/20 EXPORT MATRIX (‘000 t) GEELONG/KWINANA PRICE ($AUD/t)

PRODUCTION MATRIX TOTAL CANOLA ESTIMATES

GM CANOLA MARKET REPORT

GM CANOLA BID SHEETS

Riverina - “Buyers Call” bids for January to June 2020 deliveryRiverina - “As harvested” bids for November 2019 to January 2020 delivery

ROBE – November to December 2019 delivery

Information provided in this document have been sourced from Lachstock Consulting along with current advertised company bids. Lachstock Consulting Pty Ltd ABN 70 127 367 784 is the holder of an AFSL 320 562. The information and opinions within this document are of a general nature only and do not take into account the particular needs or individual circumstances of investors. Neither Lachstock Consulting Pty Ltd nor its subsidiaries give any warranty, whether express or implied, as to the accuracy, reliability or otherwise of the information and opinions contained herein and to the maximum extent permissible by law, accepts no liability in contract, tort (including negligence) or otherwise for any loss or damagessuffered as a result of reliance on such information or opinions.

Local market updateHarvest is underway and as usual there are mixed reports in these early stages. The rain event last week only slowed harvest in NSW and potentially caused some isolated damage.

Crops in VIC benefited from the rain and will see a lift in expected yields. Canola harvest in VIC is yet to get underway in any large-scale manner and WA harvest is progressing well, with >30% of the crop now done.

WA: WA prices have remained steady and are starting to edge higher, now at $619 FIS for non-GM. It will be interesting to see how the market holds up in the west as farmer selling increases and sales into export markets get covered. There will be a lot of competition between China and Europe, which will hopefully provide some degree of support given traders are likely to stick to back-to-back this year with the reduction in risk appetite amongst many of the main traders in Australia. GM spreads remain around $55, despite European values lifting compared to Canadian values - likely a result of poor liquidity in this early harvest period.

NSW/VIC: Similar to WA, prices seem to have stabilized in the east. VIC and NSW showing prices around $600 and $650, respectively.

Global market updateThe US-China trade deal continues to come with a lot of hope but not a lot of action. Even this week there have been talk of tariffs being relaxed by the US prior to Christmas, but we have heard all of this before.

China has reopened its doors to import Canadian beef and pork, which had been banned for 4 months. In scale terms, this is around 10% the size of the canola export value in a normal year, so we can't read into it as being a leading indicator for a resumption in full scale canola exports. It comes at a time when the China protein market has exploded so they have a more urgent (short-term) need for protein imports than they do canola…at this stage at least.

The Canadian harvest is all but done with some canola that will now need to be wintered and picked up in the spring next year. It will be interesting to see the fall-out from the next StatsCan report on 6 December.

On the demand side in Canada, crush pace has been very strong and UAE demand likewise, which seems to be flowing through to China.

New season European crops continue to struggle to get in the ground with dry conditions in France, in particular. Recent rain has helped, but with expectations for lower area again, we have reduced our crop forecast back to 18.6 mmt.

Conversely, the Ukrainian planting (now 100% done), saw more area than expected go in the ground. The forecast is now 3 mmt.

CASE STUDY – Is $600 a good price?

Whilst we have a lot of uncertainty around what is going to play out in Europe and China this coming year, is $600 still a good price?

For non-GM canola, in WA and VIC $600 port is a decile 9 (or top 10%) price. So historically, it’s a great number. For most people who budget for sub $550 prices then it’s also a great number and, with anywhere close to average yields, farmers are in front of budget. Then, the simple answer is yes, $600 is not just a good price, it’s a great price.

We then look at global values and supply and demand factors. Europe is very tight; Canada is very loose, and we have a lot of politics in play. Sure there is potential for the EU market, in particular, to shoot some fireworks in the new year as they try and solve a very tight situation, however, there are still unknowns out there. Whilst it could, should or may cause a rally in the new year, the “bird-in-the-hand” of $600 is a pretty bold give-up if you want to hold on with the expectation of an EU led rally in the new year, no matter how likely it might be.

What about GM canola? Well at $550 port, we are also up at a decile 10 price (near record). The ace in the deck for GM canola this season is going to be China. We know that the China domestic crop is small and in trouble again and it doesn’t have clear access to Canadian seed due to political reasons. This puts Australian GM growers in a very strong position. We have strong demand from Europe but IF China really wants to raise its hand for volume seed, then they have to come to Australia. The first target would be GM seed (given the discount and the fact China doesn’t pay a premium for large volumes of non-GM seed), the risk here is politics. Maybe there is a resolution for Canadian access to China, not likely in the short-term, but its possible. Again it is the “bird-in-the-hand” situation.

In summary, there are a lot of reasons to be supportive of canola prices in the coming months, but there are also risks attached and, historically, $600 is a very, very good price.

This document may contain forward-looking statements based on current assumptions and forecasts made by Bayer management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Bayer’s public reports which are available on the Bayer website at www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.TruFlex® and Roundup Ready® are Registered Trademarks of the Bayer Group.