Canola Market Outlook: December 19, 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 2,943,400 MT for 2022/2023 were the second largest weekly sales total for the season.
The NOPA crush of 179 million bu of soybeans was slightly below trade guesses. Crush margins remain strong and very profitable.
The soybean-corn ratio is at 2.27, which we think remains too low.
The central question remains: to what extent will Argentine crop losses offset the low US sales? At present, the market is lower.
Canola – Year-to-date canola disappearance into week 19 of the crop year is 11% above last year’s usage (+659 thousand MT) and amounted to 6.8 million MT compared to 6.1 million MT last year.
Even though vegetable oil has dropped in value, it still represents an amazing 95% of the crush value in canola, and margins for the crush remain strong.
There is no need to sell additional tonnage at this stage.
Oilseed Market Backdrop
Soybeans
Current market situation:
Weekly US export sales of 2,943,400 MT for 2022/2023 were primarily for China (1.3 million MT). That was the second largest weekly sales total for the season. Soybean commitments are at 41.8 million MT (1.537 billion bu) as of December 8, which is 75% of the WASDE forecast. Last year’s 1.472 billion bu of commitments were at 72% of the WASDE forecast at the time.
The National Oilseed Processors Association (NOPA) crush of 179 million bu of soybeans was slightly below trade guesses, which was surprising given the size of crush margins during November. However, this might have been offset by the weekly export sales and the firmer USD also weighed on the market. NOPA oil stocks were also surprising, increasing by 7% from October. Given the lower crush, this may imply falling demand. The decline comes mostly from exports, but US soybean oil needs to continue to price out exports as the expansion of renewable diesel capacity continues to build.
In South America, Argentina and Southern Brazil remain too dry, with soil moisture losses exacerbated by above normal temperatures, particularly in Argentina. On the other hand, looking at medium-term demand, China's rapid dismantling of its COVID controls is causing a surge in the number of cases, with importantly a reported growing number of hospital and medical personnel becoming infected. This could lessen Chinese demand if authorities cannot get it under control.
Market outlook:
The corn-soybean ratio is at 2.27. Crush margins remain strong and very profitable. Reports suggest China is 70-75% covered for January and February 2023, leaving limited scope for the remainder of the US export window. But the central question remains: to what extent will Argentine crop losses offset the low US sales? At present, the market is lower.
Canola Market
Canola usage:
The Canadian Grain Commission reported that during week 19 of the crop year, growers delivered 411 thousand MT of canola into primary elevators, exports were at 279 thousand MT, while the domestic disappearance amounted to a strong 196 thousand MT.
Year-to-date canola disappearance into week 19 of the crop year is 11% above last year’s usage (+659 thousand MT) and amounted to 6.8 million MT compared to 6.1 million MT last year.
Visible stocks remained at 1.2 million MT, with 681 thousand MT in primary elevators, 210 thousand MT in process elevators, 158 thousand MT in Vancouver/Prince Rupert, and 168 thousand MT in eastern ports.
Current market situation:
Canola exports are maintaining a very good pace and will need to slow down at some stage, but this should not happen while the oil yield in the crush remains excellent. The delivery surplus to the usage is getting lower. We expect that exports in week 20 should also be good, as there are good supplies in export positions. The oil value in the seed is 98% of the total seed cost, which is excellent, particularly for exports to China.
Both canola deliveries and exports increased again last week, and our surplus of deliveries through week 19 against usage is getting lower again. The export demand off the West Coast remains very good and should continue at the current oil share of the crush.
Market outlook:
If the Statistics Canada production estimate is anywhere near correct, then we will have to reduce the current rate of usage or run out of seed along the way. Even though vegetable oil has dropped in value, it still represents an amazing 95% percent 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
Global Oilseed Production (USDA):
Based on current USDA estimates, global oilseed production in 2022/23 is set to hit a peak of 644.4 million MT, up 7% over last year’s production. This is slightly more cautious than the previous estimate.
Global oilseed processing is also set to increase to a record high of 533.4 million MT, up 21.9 million MT on the crop year 2021/22. World trade in oilseeds is expected to record increase at 20.3 million to 198.3 million MT. In this scenario, global ending stocks would amount to 121.4 million MT, above the previous year's level by 7.1 million MT. However, ending stocks are still seen to be well below the 2018/19 season's 134.1 million tonne record high.
Global Rapeseed Production:
Based on USDA, EC, and Australian Bureau of Agricultural & Resource Economics & Sciences (ABARES) data, global rapeseed production will reach 84.3 million MT, up by ~10 million MT (+14%) from last year. Big gains in production over the previous year occurred in Canada (+5.2 million MT), from Australia (+500 thousand MT), and in the European Union (+200 thousand MT). Production in the Ukraine was also better than expected.
Consumption of rapeseed is also expected to increase by 5.5 million MT (+7.3%) to 80.8 million MT. Exports of rapeseed/ canola should increase to 16.6 million MT (14.7 million MT last crop year), with Canadian exports at 7.9 million MT.
Global ending stocks would increase to 6.8 million MT (from 4.3 million MT last year).
PLEASE NOTE: this is the last Canola Market Outlook of the year. Next Monday is Boxing Day and the following Monday is New Year's Day (with little news coming in during the holiday week). Look for the first Canola Market Outlook of 2023 on January 10.
