Canola Market Outlook: July 4, 2022
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – CBOT old crop soybeans and meal managed to end the week higher despite heavy liquidation on Thursday and Friday, but new crop soybeans ended the week lower.
For the most part, soybeans look bullish, but demand remains uncertain while China remains absent from the market.
Canola – Total canola disappearance during the first 47 weeks of the crop year amounted to 13.3 million MT compared to 19.7 million MT last YTD.
Matif rapeseed fell to its lowest level since early March (pre-war in Ukraine) on a mix of an early start to the harvest in France and reduced buying.
We think vegetable oil is undervalued, so we suggest leaving canola alone for now. However, we hope farmers followed our earlier canola advice.
Oilseed Market Backdrop
Soybeans
Current market situation:
CBOT old crop soybeans and meal managed to end the week higher despite heavy liquidation on Thursday and Friday, but new crop soybeans ended the week lower. The USDA report had no surprises in the stocks number but showed a 2.6 million acre decline in projected plantings, plus the fact that almost 16 million acres were still to be planted as of June 1. But despite this, the lack Chinese buying interest and net zero weekly export sales (old and new crop combined), and the resolution of Argentina's truckers' strike resulted in more heavy selling, leaving November soybeans at four-month lows.
Market outlook:
Taken at face value, the USDA soybean acreage was bullish, intimating 2022/23 soybean ending stocks of just 150 million bushel given current USDA demand numbers. With US export commitments record high and the USDA already projecting a near record US yield, there seems to be no room for error and US weather will increasingly become the market focus.
For the most part, soybeans look bullish, but demand remains uncertain while China remains absent from the market.
Canola Market
Canola usage: The Canadian Grain Commission reported that during week 47 of the crop year, growers delivered 170 thousand MT of canola into primary elevators, exports were at a 46 thousand MT, while the domestic disappearance was at 145 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 first 47 weeks of the crop year amounted to 13.3 million MT compared to 19.7 million MT last YTD.
Visible stocks were at 857 thousand MT, with 171 thousand MT in process elevators, 163 thousand MT in Vancouver/ Prince Rupert, and 85 thousand MT in eastern ports.
Year-to-date usage (export and crush) at 13.3 million MT is 33% smaller than last YTD.
Current market situation:
We have said for many months that the 2021/22 StatsCan canola crop estimate was understated, and we remain of that belief. We expect exports will be at least 250,000 for the month by the end of July, bringing the crop year total to 5.1 million MT.
Meanwhile, weakness in vegetable oil is reducing the value of canola to soybeans, and we expect this to continue while soybean oil holds an extraordinarily high ratio in the soybean product value.
We think vegetable oil is undervalued, so we suggest leaving canola alone for now. However, we hope farmers followed our earlier canola advice.
In Europe, Matif rapeseed dropped to around pre-war levels and at €667/MT, again ended well below the €700/MT mark. We note that a proposal from Germany to temporarily reduce the volume of biofuels consumption in G7 countries failed to gain traction at last week’s summit of G7 countries held in Bavaria, Germany. The US and Canada were said to be leading the opposition to the move.
Market outlook:
Statistics Canada is scheduled to release its estimates of Canadian crop plantings on Tuesday morning. The Reuters pre-report estimate by traders showed an average estimate of 21.3 million acres, compared to the April StatsCan number of 20.9 million acres for 2022 and 22.5 million acres in 2021. (The trade estimates showed a wide range of 20.2 million acres to 22.8 million acres). We are leaning towards the higher side of the acreage estimate, as high prices for new crop canola through the spring should have incentivized farmers to maximize canola acres. The range in acreage estimates represents a potential difference of about 2.45 million MT of canola, and given the small carry-in, this is tremendously important to the balance sheet for this year. The average trade guess still is 400 thousand acres higher than StatsCan’s April number and represents a difference of roughly 375 thousand MT of 2022 crop canola. We will see on Tuesday if StatsCan adjusted their acres.
Action:
If you followed earlier recommendations, we see no reason to sell additional canola at this time.
Canola – Topics of Interest
Canola Balance Sheet Scenarios for the 2022/’23 Crop:
While we are expecting the Statistics Canada acreage estimates this week, there still is a lot of uncertainty around these numbers. The Reuters pre-report estimate revealed an unusually high 2.6 million acres seeded acreage range in the trade’s estimates for canola, which would yield widely differing balance sheets for canola. The graph below illustrates the potential effects on the ending stocks. The blue bars represent historic canola numbers for 2020/19 to 2021/22; the red bar represents AAFC’s take on 2022/23; and the yellow bars depict the trade’s average, high and low canola acreage estimates for 2022/23. Usage numbers for 2022/23 are held constant for all 2022/23 estimates at 8.8 million MT exports and 9.15 million MT total domestic usage. The numbers shown correspond to the average trade estimate. The ending stocks resulting from the trade estimates range from 2.4 million MT to 145 thousand MT.
USDA-AMI – Rapeseed Price Developments in Europe:
Producer prices for rapeseed in Europe fell off their highs in the past few weeks and followed the downward trend on the futures markets.
The prospect of a larger harvest in Europe and the fading buying interest pressured prices. The start of the rapeseed harvest in France is also having a negative impact on prices. At the end of June, old crop lots fetched an average of EUR 783/MT, which is around 65% more than at the same time last year, but EUR 200/t less than in April 2022, when the record value of EUR 983/t was reached.
The Union for the Promotion of Oil and Protein Plants e. V. (UFOP) points out that a large part of the harvest was already contracted at lower prices in the previous months.
