Canola Market Outlook: April 8, 2024
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans: May soybeans were 6 ½ cents lower for the week, soybean meal prices were down by a net $4.80 for the week, and soybean oil led the May contract to a net 30-point gain for the week.
In S America, Brazilian fob soybean premiums pushed to season-highs, as a lack of farmer selling and competition from crushers propped up price ideas.
Middle East and South American uncertainties help to support crude and to support vegoil.
Canola: YTD total canola disappearance into week 35 of the crop year amounts to 11.5 million MT compared to 13 million MT last year and is down 12% on last year.
Propped up by strong crude oil markets, crush margins remain quite good as canola oil is competitive for diesel.
In the short term, we don’t see too many bearish influences in canola futures.
With stronger oil prices and continuing conflict in the Middle East, we should leave futures alone.
Oilseed Market Backdrop
Soybeans
Current market situation
CBOT soybeans and soybean products ended the week mixed. May soybeans were 6 ½ cents lower for the week, soybean meal prices were down by a net $4.80 for the week, and soybean oil led the May contract to a net 30-point gain for the week.
In S America, Brazilian fob soybean premiums pushed to season-highs, as a lack of farmer selling and competition from crushers propped up price ideas. The harvest closes in on the last quarter of this year’s crop.
BAGE in Argentina did not update its crop report last week. But while Argentine crushers are behind their Brazilian and US counterparts in terms of meal sales, meal values are nevertheless pressured by the impending resupply from Argentina.
Soybean oil remains the strongest leg of the soy complex as world vegoil and crude oil markets find support. Rapeseed held its gains due to strong demand into biodiesel amidst good margins and the rally in crude oil. Sunflower oil values finally broke out of its price range and rallied as it finds demand due to its low relative value.
Chinese markets had a slow week due to their holidays.
Market outlook
The trade still has a wide range of production ideas for the Brazilian crop as it nears its conclusion. But the Argentine harvest is just beginning, which should provide a new source of supplies.
Middle East and South American uncertainties help to support crude and to support vegoil markets.
Canola Market
Canola usage
During week 35 of the crop year, growers delivered 416 thousand MT of canola into primary elevators, exports were a small 41 thousand MT, while the domestic disappearance amounted to 194 thousand MT.
YTD total canola disappearance into week 35 of the crop year amounts to 11.5 million MT compared to 13 million MT last year and is down 12% on last year.
Visible stocks increased to 1.44 million MT, with 978 thousand MT in primary elevators, 218 thousand MT in process elevators, 149 thousand MT in Vancouver/ Prince Rupert, and 95 thousand MT in eastern ports.
Current market situation
Propped up by strong crude oil markets, crush margins remain quite good as canola oil is competitive for diesel.
EU rapeseed held their weeks gain as the market expects having strong demand into biodiesel with good margins. The rally in crude oil helped here as well.
In the short term, we don’t see too many bearish influences in canola futures, even though we still expect low canola exports. While weather remains a concern, we don’t expect Canadian growers to be keen sellers until after planting is complete.
Meanwhile, the high price of Cdn. canola has led buyers like Japan purchasing from alternative suppliers, which we expect will continue. [See more detail below in topics of interest.]
Market outlook
The Brazilian harvest is almost done, while Argentina is just starting, becoming a big source of new supplies. But the market is still reconciling production ideas on Brazilian and Argentine oilseed crops.
The uncertainties about the final S American supply combined with ongoing conflict in the M East are generating the dual support to both crude oil and vegetable oils.
Action
With stronger oil prices and continuing conflict in the Middle East, we should leave futures alone.
Canola – Topics of Interest
Rapeseed Imports by Japan
According to USDA, Japan has seen a decline in overall vegetable oil consumption due to persistent rising food prices. But owing to the more favorable crush margin for canola compared to soybeans, FAS/Tokyo forecasts a reduction in soybean imports and crush, while seeing an increase in rapeseed imports and crush for both MY 2023/24 and MY 2024/25.
Specifically, in MY 2022/23, Japan imported 1.98 million MT of rapeseed, down 6.6% from the previous MY. Historically, Japan has relied on Canada for approximately 95-97% of its rapeseed imports. But starting from MY 2021/22, Japan increased the purchase of Australian canola seeds due to a historically bad MY 2021/22 canola crop in Canada. On the other hand, Australia had bumper canola crops in MY 2021/22 and MY2022/23.
Japanese crushers also noted higher oil extraction rates from Australian canola seeds compared to Canadian seeds. In MY 2022/23, 58.2% of rapeseed imported to Japan came from Canada and 41.8% came from Australia. [See graph p.4]. The year-to-date estimate indicates this trend continues in MY 2023/24.
As the canola crush margin has improved drastically compared to the soybean crush margin, FAS/Tokyo projects canola imports will increase to 2.10 MMT in MY 2023/24 and MY 2024/25.
Share of Ukrainian Oilseed exports that go to the EU
According to USDA, for MY2024/25 farmers in the Ukraine plan to increase area under soybeans and spring rapeseed, while insignificantly decreasing area under sunflowers. The increase in oilseed area is forecast to be somewhat mitigated by lower yields for MY2024/25 compared to the higher-than-average yields for MY2023/24.
USDA-FAS Kyiv forecasts sunflower seed production in MY2024/25 at 11.5 million MT, a four-percent decrease against MY2023/24 (12 million MT). Soybean production is forecast at 5.1 MMT, a seven-percent increase against MY2023/24 (4.8 million MT), and rapeseed production is forecast at 4 million MT, similar to MY2023/24.
FAS Kyiv forecasts MY2024/25 oilseed exports as follows: Sunflower seeds at 300,000 MT, similar to MY2023/24. Soybeans at 2.9 million MT, a 7% increase against MY2023/24 (2.7 million MT) - Rapeseed exports at 3.6 million MT, a 22% increase against MY2023/24 (3 million MT).
The EU is expected to remain the largest market for Ukrainian oilseeds, potentially impacting Cdn. canola exports to the EU negatively.
