Canola Market Outlook: February 13, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – We had a strong close in Friday’s soybean market. At $15.43/bu CBOT soybean futures were up 23 cents on Friday, and up 11 cents for the week.
In the USDA-WASDE reports last week the one major change for soybeans was a 4.5 million MT drop in Argentina to 41 million MT.
The weather in Argentina, and whether the Brazilian crop effectively offsets Argentine losses, will be the key going forward.
Canola – YTD canola disappearance into week 27 of the crop year is 17% above last year’s usage (+1.5 million MT) and amounted to 9.8 million MT compared to 8.4 million MT last year.
Year-to-date total deliveries of canola into the handling system over total YTD usage (export and crush) are at 443 thousand MT, so the pipeline remains tight.
Given the relatively flat forward markets, we would look at selling the remainder of old crop canola at $18.50-$19.00/bu.
Oilseed Market Backdrop
Soybeans
Current market situation:
We had a strong close in Friday’s soybean market. At $15.43/bu CBOT soybean futures were up 23 cents on Friday, and up 11 cents for the week.
In the USDA-WASDE reports last week the one major change for soybeans was a 4.5 million MT drop in Argentina to 41 million MT. But prior to the report, Rosario GE lowered their crop by 2.5 million MT to just 34.5 million MT. On the consumption side, global crush was lowered 3.6 million MT from last month, with 400 thousand MT in the US, 700 thousand MT in Argentina and 1 million MT in China. The market was not impressed by the USDA numbers with futures initially broadly unchanged.
Market outlook:
For now, the market seems focused on meal values until Argentine traders get their short positions covered and/or demand is rationed enough, or there is evidence that Brazil is going to keep Argentine crushers supplied with soybeans. Once this meal squeeze is solved, then the size of Brazilian soybean production may come to dominate. The weather in Argentina, and whether the Brazilian crop effectively offsets Argentine losses, will be the key going forward.
Canola Market
Canola usage:
The Canadian Grain Commission reported that during week 27 of the crop year, growers delivered 314 thousand MT of canola into primary elevators, exports were at 211 thousand MT, while the domestic disappearance amounted to 187 thousand MT.
YTD canola disappearance into week 27 of the crop year is 17% above last year’s usage (+1.5 million MT) and amounted to 9.8 million MT compared to 8.4 million MT last year.
Visible stocks fell to 1.16 million MT, with 651 thousand MT in primary elevators, 202 thousand MT in process elevators, 151 thousand MT in Vancouver/ Prince Rupert, and 152 thousand MT in eastern ports.
Current market situation:
Year-to-date total deliveries of canola into the handling system over total YTD usage (export and crush) are at 443 thousand MT, so the pipeline remains tight.
Statistics Canada published December export numbers last week. December canola exports amounted to 678 thousand MT, for a YTD total of 3.3 million MT, 14% more than last year’s. China has been the single biggest buyer this crop year at 1.6 million MT, followed by Mexico (595 thousand MT), Japan (512 thousand MT) and Pakistan (267 thousand MT). Exports to the European Union have fallen to 156 thousand MT year-to-date due to competition by Ukraine and Australia.
The Statistics Canada stock numbers as of December 31, 2022, that were also published last week, showed relatively tight canola stocks. At 11.4 million MT they were almost 33% higher than for the drought-reduced 2021 crop, but they are also still 1.9 million MT smaller than for the pre-drought 2020 crop.
We note that board crush margins for canola moved back up to close to ~$155/MT, creating ample incentive to keep crush as close to capacity as possible.
Market outlook:
Again, there is little doubt that the Canadian canola balance sheet will remain tight. But we wonder if the size of Brazilian soybean production may come to dominate soybean markets in the face of potentially slowing demand by China.
Action:
Given the relatively flat forward markets, we would look at selling the remainder of old crop canola at $18.50-$19.00/bu.
Canola – Topics of Interest
Statistics Canada: December Exports by Destination
Statistics Canada: Stocks as of December 31
EU-Commission: European Union Rapeseed Supply and Demand
According to the EU-Commission, the 2022 rapeseed crop in the EU-27 was significantly bigger than in 2021. The crop is estimated 19.6 million MT, which is an increase of 2.5 million MT. It is the largest crop in five years, despite the continued dryness and heat. The rise is mainly due to rapeseed crop increases in France and Germany.
Total consumption in the EU-27 is seen at 24.2 million MT, up around 9%. Demand from oil mills is estimated at 23.3 million MT, also an increase of just less than 9% over 2021/22. Last year, just under 80% of EU processing was sourced domestically in Europe. In 2022/23, the share is expected to rise to just over 84%. Therefore, the EU Commission expects rapeseed imports to fall. Rapeseed imports are forecast at 5.1 million MT, down 8% from the previous year's volume. Ending stocks are expected to remain unchanged from the previous year at a below-average level of 500 thousand MT.
