Canola Market Outlook: July 17, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Weather dominated the futures markets this week as reports of dry conditions had traders concerned. Futures markets rallied substantially in thin markets. Soybean futures gained about 40 cents per bushel.
Open interest in soybean futures increased by 7,139 contracts across all months in net buying interest.
The weekly Commitment of Traders update had managed money adding shorts during the week that ended 7/11. That left the group 6,400 contracts less net long at 82,748 contracts.
South American soybean premiums remain at a huge discount to American. Brazilian traders are buying futures as the cash sell premiums. American soybeans are not competitive in most markets.
In the Wasde report, the USDA left the soybean yield at 52 bushels per acre but reduced the planted acres to 82.7 myn; a reduction of 4 myn acres. The carry in was projected to be 300 myn bushels compared to 255 myn for this crop year.
The Black Sea corridor agreement closed today. The market waits to see what the consequences of this are.
Canola followed soybeans higher in a very thin market. Growers concerned with dry conditions were not sellers.
Oilseed Market Backdrop
Soybeans
Current market situation
The numbers in the July USDA report last Wednesday were a little higher than the trade had anticipated thanks to an unchanged yield of 52bu/acre. This was the only major change to world production.
Weather in North America is driving futures markets; however, the bumper Brazilian crop is doing most of the cash business.
The trade reports that 57% of the soybean crop was still reportedly affected by drought.
We have not seen any Chinese purchases of USA soybeans for a month whilst their registrations of Brazilian are a record.
Market outlook
Looking ahead, there is minimal rain due across much of the key producing states next week. This could bring some support short term. Currently, 57% of the US soybean area is under drought conditions.
Canola Market
Canola usage
In week 49 growers delivered 300,000 tonnes. Canada exported 112,000 tonnes and domestic usage was said to be 194,000 tonnes. Visible stocks are 939,000 tonnes. By the year’s end, we expect exports to be 8.15 myn tonnes. We haves reduced our exports a bit as demand for Canadian canola appears to be lacking. Crush margins remain healthy.
Current market situation
Support in soybean markets fed into world rapeseed prices last week, with concerns over dryness in Canada adding support. Paris rapeseed futures (Nov-23) ended the week up 5%, closing on Friday at €471.25/t.
Canola prices were much higher in Canada as the markets were concerned about dry conditions. The markets have rallied nearly $70.00 since the 6th of July in thin markets.
Market outlook
The oilseeds markets will watch the weather outlooks very closely to see if drought conditions in North America are realistic whilst South American sales continue at a record pace. The markets could be very volatile. The trade was under estimating supplies in their estimate of what the WASDE report would say.
Action
We think it is warranted to have a good percentage sold at current levels. We would use this rally to get to 60% sold.
Canola – Topics of Interest
USDA Update on EU Rapeseed Production
In their latest update last week, USDA lowered their 2023/24 EU rapeseed forecast by 4% (-800k MT) from last month to 20.2 million MT. This still is 3% higher thn last year’s production. EU rapeseed production has been rising for several years and the ‘23/24 estimate is 16% above the 5-year average. Harvested area is estimated at 6.1 million hectares, and yield is estimated at 3.33 MT per hectare (t/ha), down 4% from last month, but up 1% from last year, and 8% above the 5-year average.