Canola Market Outlook: January 30, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – CBOT soybeans traded in a 50¢ range over the week, and closed 3¢ higher on the week. We expect soybeans to perform strongly this week.
BAGE raised its crop ratings last week following the recent rains, but left their crop estimate at an unchanged 41 million MT versus the USDA's 45.5 million MT estimate.
We expect soybeans to be strong this week.
Canola – Year-to-date canola disappearance into week 25 of the crop year is 16% above last year’s usage (+1.3 million MT) and amounted to 9.1 million MT compared to 7.8 million MT last year.
While the oil portion in the seed is representing 43% of the crush margin, canola exports will remain strong, particularly to China, Mexico and Japan.
We would sell additional canola given bids given prices of ~$19.50 per bushel (+).
Oilseed Market Backdrop
Soybeans
Current market situation:
CBOT soybeans traded in a 50¢ range over the week, and closed 3¢ higher on the week.
We were surprised China bought US soybeans (albeit for the 2023/24 season) during the Lunar New Year week. There are also rumors that China bought May-June Brazilian soybeans. US market year export sales are now up 5% on last year. At the same time, outstanding sales remain at a near record high, which leaves them vulnerable to switches/cancellation if Brazilian premiums fall under harvest pressure.
In Argentina, BAGE raised its crop ratings last week following the recent rains. Good/Excellent ratings came in at 7% versus 3% last week. This remains well below last year's 36% Good/Excellent. However, BAGE left their crop estimate at an unchanged 41 million MT versus the USDA's 45.5 million MT. Soybean plantings are now essentially complete.
Market outlook:
Given seeding is complete in Argentina, soybeans are now all about weather. Brazil will shortly need drier conditions to avoid harvest delays. This week will also see the return of China to the market, hopefully with additional demand. The up-trend channel in CBOT soybeans is still intact; soybeans bounced off the 50-day moving average on Wednesday and closed well above the 20-day moving average on Friday. CBOT March soybeans have closed above $15.25 just twice in the last 8 months. We expect soybeans to be strong this week.
Canola Market
Canola usage:
The Canadian Grain Commission reported that during week 25 of the crop year, growers delivered a big 503 thousand MT of canola into primary elevators, exports were at a 175 thousand MT, while the domestic disappearance amounted to a strong 298 thousand MT.
YTD canola disappearance into week 25 of the crop year is 16% above last year’s usage (+1.3 million MT) and amounted to 9.1 million MT compared to 7.8 million MT last year.
Visible stocks remained at 1.3 million MT, with 760 thousand MT in primary elevators, 211 thousand MT in process elevators, 202 thousand MT in Vancouver/ Prince Rupert, and 163 thousand MT in eastern ports.
Current market situation:
Deliveries of canola remained quite high (503 thousand MT last week) and we think this implies a larger crop than Statistics Canada has been showing and points towards the Mercantile number used since the fall of around 20 million MT. It also shows that logistics seem to work better than last year, which is a positive development.
Extrapolating year-to-date exports of 4.1 million MT over the crop year gives us 8.9 million MT, about 800 thousand MT short of our projection, but the exports started slowly after harvest and the pace has picked up over the winter. In addition, crush margins have eased a little, so exports will remain good. We still think we are heading towards a 1.2 million MT ending stock number, about a small 6% stock-use ratio. For what it’s worth, the Statistics Canada December 31 stocks report comes out on February 7, which should help narrow down the crop size.
Beyond the canola balance sheet, what happens to soybeans remains important. This will be heavily influenced by the South American crop and Chinese buying behaviour towards US soybeans. The up-trend channel in CBOT soybeans is still intact, and we expect a strong showing from soybeans early next week.
As a note on China, we observe that the Chinese December hog slaughter were reported at 18% above November and 7% above December 2021. China’s Agriculture Ministry is openly encouraging farmers to curb excess pork production by reducing sow herds. China’s pork production for 2022 was an 8-year high, and prices have reportedly fallen by almost 50% since October. Meal sales were zero ahead of the holiday. This might influence the overall demand for soybean/ soybean meal.
Market outlook:
We expect China back in the oilseed markets this week. Meanwhile, canola rush margins have remained strong and we expect good import demand by our major canola destinations.
Action:
We would sell additional canola given bids at $19.50 per bushel to get 75-80% sold.
Canola – Topics of Interest
Statistics Canada Canola Crush Statistics:
Statistics Canada showed that 826 thousand MT of canola were crushed in Canada during December 2022, for a year-to-date total of 4 million MT. This is 214 thousand MT more than had been crushed last year by the end of December. Annualizing the year-to-date crush to the full crop year would give us 9.6 million MT of crush for the crop year. Agriculture and Agri-Food Canada is using 9.5 million MT, while we are using a 10 million MT crush for 2022/23.
