Canola Market Outlook: July 11, 2022
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – Volatility in the CBOT soy complex continued last week. Soybeans closed slightly higher on Friday, but 70-90 cents per bushel off the early highs due to oversold charts.
The next market focus is on Tuesday's USDA report. USDA will have to lower demand, although with soybeans down $2 from the June report and export commitments still record large, it is hard to see where they can make the cuts.
Canola – Total canola disappearance during the 48 weeks of the crop year amounted to 13.5 million MT compared to 20 million MT last YTD.
The canola chart was “oversold.” Lower energy costs and cheaper palm oil are challenging canola prices. However, crush margins remain good.
We would not sell presently as soybeans look undervalued, but a very close eye needs to be kept on the markets.
Oilseed Market Backdrop
Soybeans
Current market situation:
Volatility in the CBOT soy complex continued last week. Soybeans closed slightly higher on Friday, but 70-90 cents per bushel off the early highs due to oversold charts. CFTC data showed soybean spec traders were 19,450 contracts less net long through the week that ended July 5. This Monday morning, soybean prices gapped higher with dryness in the forecast. However, prices have backed off those highs with November 25 cents under the early high.
US crop ratings remain above average and weekly export sales were again poor, but the weather outlook is becoming more concerning. The USDA this week will have to find a way to offset their NASS acreage reduction. Going into the USDA July WASDE report, the trade expects an average soybean production cut of 117.8 million bu to 4.522 billion bu. The full range of estimates is to see between 4.482 billion bu and 4.709 billion bu in the report next Tuesday.
In international news, CONAB in Brazil trimmed their soybean crop by 300,000 MT to 124 million MT (versus USDA 126 million MT).
Market outlook:
Energy remains a major driver with NYMEX and Brent crude oil both up 4%. Overnight soybean oil is up another 0.93 cents on further gains in crude and some significant profit taking in Asian vegetable oils following the recent collapse. The next market focus is on Tuesday's USDA report. Basis the NASS revised acres, USDA will have to lower demand, although with soybeans down $2 from the June report and export commitments still record large, it is hard to see where they can make the cuts.
Canola Market
Canola usage: The Canadian Grain Commission reported that during week 48 of the crop year, growers delivered 152 thousand MT of canola into primary elevators, exports were at a 99 thousand MT, while the domestic disappearance was at 171 thousand MT. Crush volume still averages at 179 thousand MT per week. Exports are running at 103 thousand MT per week (5.3 million MT annualized).
Total canola disappearance during the 48 weeks of the crop year amounted to 13.5 million MT compared to 20 million MT last YTD.
Visible stocks fell to 765 thousand MT, with 157 thousand MT in process elevators, 99 thousand MT in Vancouver/ Prince Rupert, and 100 thousand MT in eastern ports.
Year-to-date usage (export and crush) at 13.5 million MT is 32% smaller than last YTD.
Current market situation:
The oil share in the crush equation has dropped, making canola less valuable relative to soybeans as the product value shows. However, the tightness of old crop canola is keeping the new crop overvalued. We would not sell presently as soybeans look undervalued, but a close eye should be kept.
The canola chart was “oversold.” Lower energy costs and cheaper palm oil are challenging canola prices. Crush margins remain good.
In Europe, Matif November rapeseed fell as low as €658.70/MT (below pre-war in Ukraine levels) but closed back at €700/MT today. There has been a marked switch in the European weather outlook to completely dry conditions and heat in the west, although temperatures in two of the major producing areas – Germany and Poland – are not expected to be significantly above normal. Canadian canola also followed the CBOT rebound, plus there are reports of poor crop development.
Market outlook:
Oilseed markets will focus on Tuesday’s USDA report and potential adjustments to the demand side. Meanwhile, Matif rapeseed and Canadian canola ended lower last week on weakness in Asian vegetable oils, which despite Friday’s bounce shed 7-10% on the week after Indonesia again hiked their export quotas and Malaysian stocks hit a seven-month high. For now, the tightness of old crop is keeping the new crop overvalued. We would not sell presently as soybeans look undervalued, but a close eye should be kept.
Action:
We would not sell presently as soybeans look undervalued, but a very close eye needs to be kept on the markets.
Canola – Topics of Interest
July export numbers:
The StatsCan May export numbers for canola showed Canada shipped 349 thousand MT of canola during the month of May. China was the biggest destination at 152 thousand MT, followed by Japan (113 thousand MT) and the US (64 thousand MT). YTD exports add to 4.7 million MT for the August 2021 to May 2022 period, compared to 9.4 million MT last year. By destination, the biggest reductions are to the EU (-1.1 million MT), to China (-980 thousand MT), to Japan (-691 thousand MT), to the UAE (-689 thousand MT) and to Pakistan (-580 thousand MT).
July acreage:
The July StatsCan (STC) acreage for canola came in at 779 thousand acres, more than 447 thousand acres higher than the STC number in late April. The July STC acreage of 21.415 million acres would be 4.7% lower than last year’s acreage. This makes little sense to us, given the strong prices for canola late winter and spring. We would expect the actual seeded acreage to be closer to 22 million acres.
