Canola Market Outlook: July 18, 2022
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – We did not see anything bearish in the WASDE report. In fact, the interpretation of the US market looked more bullish to us.
The main market feature was the third straight week of old crop sales cancellations.
Forward soybeans ended lower and new crop soybean oil also fell to 2022 lows. This takes the oil share back below 40%, but new crop board crush margins remain at a solid $1.60-$1.70.
Canola – Total canola disappearance during the 49 weeks of the crop year amounted to 13.8 million MT compared to 20.2 million MT last year-to-date.
In the short term, canola will stay firm due to the shortage in the current crop.
Oilseed Market Backdrop
Soybeans
Current market situation:
July CBOT soybeans went off the board up 22¢ at $16.10/bu. July soybean meal expired at contract highs, while soybean oil fell to near 2022 lows. Forward soybeans ended lower, while meal was mostly flat, and new crop soybean oil also fell to 2022 lows. This takes the oil share back below 40%, but new crop board crush margins remain at a solid $1.60-$1.70.
The main market feature was the third straight week of old crop sales cancellations. Weather took a back seat – it really is the month of August which will be key for the US crop. Having said that, given the USDA demand estimates, a 1.5 bu/acre loss in yield to just 50 bu/acre would lower 2022/23 US ending stocks down to only 100 million bu, which might fuel a meaningful rally.
In Brazil, new legislation approved by the Brazilian Congress on Wednesday reinstates a tax advantage to biofuels compared to fossil fuels, for a period of 20 years! The Brazilian Real declined double the rate of the CBOT which brought some improved farmer selling, but markets remained overall quiet with China absent.
National Oilseed Processors Association (NOPA) members reported a June crush of 164.677 million bu. The trade average guess was close at 164.5 and compares to 152.4 million bu last year.
In Asian markets, only rapeseed oil ended the week in the green. Palm oil was at almost 10-month lows having lost 13% this week and 45% over the last four weeks.
Market outlook:
The soybean/corn ratio improved a little, but we think it is still too low and should be closer to 2.30 premium for soybeans. Meal demand will improve and the oil value in the crush will continue to decline. US 2022/23 ending stocks fell by 50 million bushels to 230 million bushels, leaving no room for any summer weather problems.
Canola Market
Canola usage: The Canadian Grain Commission reported that during week 49 of the crop year, growers delivered 174 thousand MT of canola into primary elevators, exports were at 87 thousand MT, while the domestic disappearance was at 158 thousand MT. Crush volume still averages at 179 thousand MT per week. Exports are running at 102 thousand MT per week (5.3 million MT annualized).
Total canola disappearance during the 49 weeks of the crop year amounted to 13.8 million MT compared to 20.2 million MT last year-to-date.
Visible stocks fell to 738 thousand MT, with 172 thousand MT in process elevators, 253 thousand MT in Vancouver/ Prince Rupert and 109 thousand MT in eastern ports.
Year-to-date usage (export and crush) at 13.8 million MT is 32% smaller than last YTD.
Current market situation:
We are seeing the continued strong deliveries, so it is apparent that Statistics Canada has underestimated the 2021/22 crop canola supply. We have updated our balance sheet showing increased production (14.1 million MT), as well as increased exports (5.4 million MT) and domestic use (9.2 million MT). We increased planted acres to 21.5 million and the yield to 28.5 bushels per acre.
We expect the crush ratio for soybean oil in soybeans to decrease further, which will be a little bearish on new crop canola. However, in the short term, canola will stay firm due to the shortage in the current crop.
In Europe, Matif rapeseed ended the week mostly flat, helped by the Euro's close below dollar parity for the first time in 20 years. Meanwhile, November Canadian canola ended the week down $5.70/MT at 843.40/MT but moved up by $12.40/MT this Monday to 855.80/MT. Gains today in crude oil and big gains in soybean oil have been supportive. In addition, high temperatures on the eastern Prairies have been putting stress on crops, which also is supportive to canola prices. Last week, Saskatchewan Agriculture rated canola at 68% in Good to Excellent condition, 25% Fair, and 7% Poor to Very Poor. Alberta Agriculture also rated canola at 68% Good to Excellent. This means that almost 1/3 of the crop are currently vulnerable to adverse conditions.
Market outlook:
We expect the crush ratio for soybean oil in soybeans to diminish further, which will be somewhat bearish for new crop canola. However, in the short term, canola will stay firm due to the shortage in the current crop.
Action:
In the short term, canola will stay firm due to the shortage in the current crop.
Canola – Topics of Interest
Latest Crush Statistics:
The StatsCan May crush numbers for Canada showed 592 thousand MT for the month, compared to 820 thousand MT last crop year, and 855 thousand MT for 2019/20. It was the smallest monthly volume of the crop year, reflecting the increasing tightness of supplies.
The year-to-date crush (Aug. 2021 to May 2022) adds to 7.1 million MT compared to 8.7 million MT last year-to-date, a 19% reduction in volume. Annualizing the YTD crush yields 8.55 million MT for the ongoing crop year.
