Canola Market Outlook: December 18, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans: The CBOT soybean complex ended up mixed last week, as soybeans and soybean meal gained, but soybean oils fell slightly.
In the US, export sales are a full 20% below last year’s (USDA is expecting them to be down 12%). Last week there were 1.1 million MT worth of sales announcements, with increases primarily for China.
We think the weather in Brazil still holds some importance, but in our view, it primarily affects when the new crop becomes available.
There were good sales to China as crush margins remain good and we approach the Chinese holidays.
Canola: YTD canola disappearance into week 19 of the crop year amounts to 6.2 million MT compared to 6.8 million MT last year and is down 8% on last year.
Given the recent StatsCan numbers, the fundamental picture in canola looks reasonably well supplied and there are no pressures on the market. So, while crush has been good, the lack of export sales is weighing on the commodity.
Exports should pick up in 2024 as canola is now undervalued compared to soybeans.
Assuming growers have sold 80 percent as we advised, we would hold additional new sales for now.
Oilseed Market Backdrop
Soybeans
Current market situation
The CBOT soybean complex ended up mixed last week, as soybeans and soybean meal gained, but soybean oils fell slightly.
In the US, export sales are a full 20% below last year’s (USDA is expecting them to be down 12%). Last week there were 1.1 million MT worth of sales announcements, with increases primarily for China. And NOPA recorded a record November crush, and soybean oil stocks rose for the first time since April.
In S America, central Brazil remains hot and dry, with rain persisting in the South leading to plantings delays and replanting. We think the weather in Brazil still holds some importance, but in our view, it primarily affects when the new crop becomes available. Very early harvest results show that yields were 10-15% below normal.
In Argentina, the Gvmt. proposed a 3% drop in soybean export taxes (which is opposite to what they are proposing for grains), but import taxes rise from 7.5% to 17.5%. The Buenos Aires Grain Exchange (BAGE) put plantings at 60% complete, but GD/EX ratings dropped from 35% to 30%.
Matif rapeseed in Europe is showing a long-term sideways pattern as vegetable oils consolidate. Malaysian stocks rose within weak exports allowing palm oil to fall to 1-month lows.
Market outlook
Soybeans still reflect the best grower returns. In our view, soybeans remain overpriced to corn and we will maintain or spread.
There were good sales to China as crush margins remain good and we approach the Chinese holidays. Chinese import demand and US biodiesel disappearances will remain the key demand variables.
Canola Market
Canola usage
The Canadian Grain Commission reported that during week 19 of the crop year, growers delivered 340 thousand MT of canola into primary elevators, exports were at a poor 109 thousand MT, while the domestic disappearance showed 254 thousand MT.
YTD canola disappearance into week 19 of the crop year amounts to 6.2 million MT compared to 6.8 million MT last year and is down 8% on last year.
Visible stocks were shown at 1.14 million MT, with 588 thousand MT in primary elevators, 201 thousand MT in process elevators, 164 thousand MT in Vancouver/ Prince Rupert, and 188 thousand MT in eastern ports.
Current market situation
The domestic crush margins remain very good, especially for those who also sell bottled oils. The exports through week 19 are over 900k MT less than last year, and we don’t expect weeks 20/21 to be very large as we enter the Christmas week.
As discussed last week, StatsCan increased their estimate of the canola crop to 18.3 million MT (from 17.3 million MT previously), which we think is too high now and makes little sense to us. We remind growers that the StatsCan estimates have not been very reliable and have been subject to retroactive changes. But given the recent StatsCan numbers, the fundamental picture in canola looks reasonably well supplied and there are no pressures on the market. So, while crush has been good, the lack of export sales is weighing on the commodity.
We are also receiving reports from the country suggesting that some growers are undersold – which could bring some short-term weakness. However, exports should pick up in 2024 as canola is now undervalued compared to soybeans.
In Europe, rapeseed broke through the bottom of the ascending channel last week, and Matif rapeseed saw fresh good volume selling taking it to 1-month lows. As vegetable oils consolidate, Matif rapeseed is showing a long-term sideways pattern. Meanwhile, Cdn. canola was caught in a downtrend since the StatsCan update, though Jan. ’24 canola closed up $4.70/MT today.
Market outlook
For growers, we think the best returns going forward will be at the companies which are solely exporters rather than crushers. For now, we leave our ’23/24 export estimate unchanged at 7.5 million tonnes.
Action
Assuming growers have sold 80 percent as we advised, we would hold additional new sales for now.
Canola – Topics of Interest
Australia – October canola exports
According to ABARES, Australia exported 385k MT of canola during October ’23, and over 1.1 million MT since August ’23.
The October number is up 5 percent from the 366k MT shipped in September and is almost a tenfold increase on the 40k MT exported in October 2022. This is partly because of an earlier harvest this year compared to last year.
France (98k MT), Japan (83k MT) and Mexico (81k MT) were the three biggest markets for Australian canola exported in Oct. ‘23. They show that Australia is competing with Cdn. canola into a number of markets: EU, Japan, Mexico, the UAE, Pakistan and Bangladesh [see highlighted destinations].
