Canola Market Outlook: April 3, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – The USDA March US stocks came in well below trade expectations. USDA acreage projections at 87.5 million acres were in line with the February Forum number, but they were also below trade guesses. New crop futures were up 45¢ on the week.
US weekly export sales were 348 thousand MT on soybeans, leaving the season total at 1,830 million bu, down 10% on last year.
Despite the record crop in Brazil, the market seems to think more US acres are needed.
Canola – YTD canola disappearance into week 34 of the crop year is 25% above last year’s (drought-reduced) usage (+2.6 million MT) and amounted to 12.7 million MT compared to 10.1 million MT last year.
We view the increase in bids for current crop canola as an opportunity to sell for those who still hold old crop canola. Longer term, we are worried about the reduction in premium of rapeseed oil over soybean oil in China.
Finish old crop sales if not yet done so.
Oilseed Market Backdrop
Soybeans
Current market situation:
The USDA March US stocks came in well below trade expectations. And, although USDA acreage projections at 87.5 million acres were in line with the February Forum number, they were also below trade guesses. New crop futures were up 45¢ on the week.
US weekly export sales were 348 thousand MT on soybeans, leaving the season total at 1,830 million bu, down 10% on last year. Soybean meal sales at 378 thousand MT were above expectations, but soybean oil at just 2 thouand MT keeps the season total 88% below last year.
Argentina announced a third Argentine 'Soy Peso' (preferential exchange rate) for April. The rate is expected to be around 300 Argentine Pesos per US$ (versus ~ARS 210/ US$ in the exchange markets), with the goal to encourage farmer selling to domestic crushers and for export, thereby providing needed tax revenue. BAGE left the 2023 crop at 25 million MT, with just 30% of the crop mature against 50% on average and harvest still at zero.
We missed our opportunity to put the corn-soybean spread on at 2.27. It now stands at 2.32, so we will wait for a better opportunity. The markets are nervous, but we see no reason for this at present.
Market outlook:
Despite the record crop in Brazil, the market seems to think more US acres are needed. We think we will have to see what the demand dynamics will be going into new crop.
Canola Market
Canola usage:
The Canadian Grain Commission reported that during week 34 of the crop year, growers delivered 378 thousand MT of canola into primary elevators, exports were at a big 269 thousand MT, while the domestic disappearance amounted to 221 thousand MT.
YTD canola disappearance into week 34 of the crop year is 25% above last year’s (drought-reduced) usage (+2.6 million MT) and amounted to 12.7 million MT compared to 10.1 million MT last year.
Visible stocks were at 1.28 million MT, with 693 thousand MT in primary elevators, 237 thousand MT in process elevators, 249 thousand MT in Vancouver/ Prince Rupert, and 98 thousand MT in eastern ports.
Current market situation:
Importantly, the rapeseed oil premium to soybean oil in China has narrowed considerably over the last while, so we expect Chinese imports to slacken as we go forward.
Meanwhile, rapeseed in Europe has been nudging back towards €500/mt (currently €490/mt for May), and European longs will be hoping that the Canadian spring stays cold to affect planting/production ideas in Canada. However, European crops are already flowering, and for the most part look good as with a positive production outlook. The EU executive said that attractive prices during seeding and mild conditions during winter had boosted the rapeseed area to rise to an expected five-year high of 6 million hectares. The first EU 2023/24 crop outlook put the rapeseed crop at 19.8 million MT (up 1% over last year and 15% above the 5-year average), at 2.8 million MT for soybeans and at 10.9 million MT for sunflower seeds, for a total 33.5 million MT, up 7% year on year with an additional build up in total supplies. If the oilseed crops come off as planned, this will affect the import volume of oilseeds by the EU in the next crop year.
Canadian ICE canola has also turned higher with snow and cold expected to persist at least for another 10 days, and with plantings in Manitoba’s Red River valley potentially further delayed by flooding.
Asian vegetable oil markets are showing signs of sustaining recent support after reaching contract lows last week.
Market outlook:
We view the increase in bids for current crop canola as an opportunity to sell for those who still hold old crop canola. Longer term, we are worried about the reduction in premium of rapeseed oil over soybean oil in China. We need good volume buying by China for the Oct./ Nov./ Dec. periods to support the market in the new crop positions. Without that, the market will lack depth.
Action:
Finish old crop sales if not yet done so.
Canola – Topics of Interest
US canola acres:
According to the USDA seeding intentions report last week, US producers intend to plant a record high 2.27 million acres of canola in 2023. This is up a modest 3% from last year's seeded acreage.
Compared to last year, seeded area is expected to decline in five of the six major canola-producing States, but North Dakota is expecting an increase. Seeded acreage in North Dakota, the most important canola-producing state, is expected to increase by 6% from last year to a record high 1.90 million acres.
Based on 5-year average yields, we would expect US canola production to reach 1.8 million MT, 3% higher than last year’s production.
EU oilseed outlook:
According to the EU, the EU winter rapeseed area is estimated at a 5-year high of 6.0 million ha due to attractive prices during seeding. The EU rapeseed production is expected to increase to 19.8 million MT (+1.0% year-on-year and +15% above 5-year average).
Seeded area for sunflower is expected to show a 10% increase above 5-year average and reach 4.8 million ha, due to the temporary derogation from the obligation to allocate a part of the arable land to non-productive areas and features, and a possible switch from corn in drought affected regions. Assuming average yields, sunflower production would reach a new record of 10.9 million MT (+18% year-on year).
Seeded area for soybeans is also expected to increase by 6.4% above 5-year average (to 1.0 million ha).
Total EU oilseed production in 2023/24 could increase by 7% year-on-year to reach a new record of 33.6 million MT. EU vegetable oil and oilseed meal production is expected to hit new highs of 17.2 million MT of oils and 30.9 million MT of meals. As a result, EU net imports of these products are forecast to be lower than in 2022/23, and EU self-sufficiency rates could increase.
