Canola Market Outlook: December 12, 2022
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – Weekly US export sales of soybeans at 1.7 million MT were better than expected, with China as the main buyer.
The soybean-corn ratio is at 2.28, which we think remains too low.
The key to the soybean market will be the extent to which the USDA's estimated increase in South American production of over 36 million MT proves to be correct, while the still-significant fund long in oil will determine just how much more of the product share needs to adjust.
Canola – Year-to-date canola disappearance into week 18 of the crop year is 9% above last year’s usage (+530,000 MT) and amounted to 6.3 million MT compared to 5.8 million MT last year.
The export demand off the West Coast remains very good and should continue at the current oil share of the crush.
There is no need to sell additional tonnage at this stage.
Oilseed Market Backdrop
Soybeans
Current market situation:
USDA-WASDE report last Friday – The USDA left the domestic soybean balance sheet unchanged from November, leaving the supply at 4.634 billion bu and the carryout at 220 million bu. For the products, soybean oil had tighter carry-in stocks and an import reduction for a net 208 million lb lighter supply. Exports and biofuel usage were each reduced 200 million lbs, but the domestic food use was 150 higher for a net 42 million lb stocks increase. The USDA was much less severe than the trade in its estimate of the EPA impact on soybean oil stocks.
The global soybean balance sheet was mostly unchanged after a 920,000 MT boost, mostly from the European Union. Global soybean ending stocks were 540,000 MT higher compared to trade expectations of a 1.8 million MT boost.
The USDA left all South American crops unchanged despite increasing concerns in Argentina where Gd/Exc ratings fell by 4% to just 11% (compared to 78% last year). As well, plantings in Argentina were just 37% complete (compared to a 61% average) as heat and drought persisted. Soybean oil got tighter carry-in stocks and an import reduction for a net lighter supply.
Weekly data had speculative soybean traders at 99,454 contracts net long as of December 6. That was a 2,650 contract smaller net long via more new sellers than new buyers during the week. Soybean oil futures slid some more on Friday, making for a net 16% drop on the week. The funds lessened bean oil exposure through the week with 34,000 closed longs (30% of the existing longs) and added 9,000 new shorts for a 62,584-contract net long.
We note that weekly US export sales of soybeans at 1.7 million MT were better than expected, with China as the main buyer. This gave support to soybeans during the week.
Market outlook:
The soybean-corn ratio is at 2.28, which we think remains too low.
The key to the soybean market will be the extent to which the USDA's estimated increase in South American production of over 36 million MT proves to be correct, while the still significant fund long in oil will determine just how much more the product share needs to adjust.
Canola Market
Canola usage:
The Canadian Grain Commission (CGC) reported that during week 18 of the crop year, growers delivered 351 thousand MT of canola into primary elevators, exports were at 234 thousand MT, while the domestic disappearance amounted to a strong 250 thousand MT.
Year-to-date canola disappearance into week 18 of the crop year is 9% above last year’s usage (+530 thousand MT) and amounted to 6.3 million MT compared to 5.8 million MT last year.
Visible stocks fell to 1.2 million MT, with 700 thousand MT in primary elevators, 185 thousand MT in process elevators, 144 thousand MT in Vancouver/ Prince Rupert, and 180 thousand MT in eastern ports.
Current market situation:
Canola deliveries were smaller last week, and so our surplus of deliveries through week 18 is getting lower. The export demand off the West Coast remains very good and should continue at the current oil share of the crush.
Market outlook:
If you believe that Statistics Canada’s production estimate was correct, we will have to reduce the current rate of usage or run out of seed along the way. Even while oil is much lower, it still represents 88% of the crush value in canola, and margins for the crush remain strong.
Action:
We suggest refraining from additional sales into the New Year.
Canola – Topics of Interest
Summary Canola Usage:
Domestic crush of canola at 2.3 million MT has been strong, running at an annualized rate of 9.25 million MT.
Year-to-date canola export shipments at 1.5 million MT are roughly on par with last year’s shipments. Supported by excellent crush margins, export shipments to China strengthened significantly during October to 872 thousand MT for the month. Annualizing YTD export shipments results in only 6.2 million MT, but this ignores the strong pick-up in exports in October. Weekly CGC export numbers indicate November exports of at least 1 million MT as well.
Statistics Canada’s supply number of 18.9 million MT would not warrant usage to proceed at the current pace.
