Canola Market Outlook: June 24, 2024
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans: CBOT soybeans posted the 4th consecutive week of declines and broke through prior support, but they did not drop as much as feed grains, which were subject to European harvest pressure.
In the US, crop ratings dropped by 2 points to 70% Gd/Exc but remain well ahead of last year’s 54% Gd/Exc rating.
The NOPA crush report showed a better-than-expected May crush of 183.8 mln bu, which is a record for the month and was above trade expectations of 178.3 mln bu.
In our view, where we go from here depends on the weather and how much China buys.
Canola: YTD total canola disappearance into week 46 of the crop year amounts to 15.7 million MT compared to 16.4 million MT last year and is down 5% on last year.
Crop conditions for canola are generally viewed as quite good following the improved moisture situation we have witnessed over the past month. Nevertheless, cooler temperatures and excess moisture conditions are causing delays to overall crop development.
The AAFC scenario for ‘24/25 left ending stocks at 2.5 mln mt. – We expect production to be higher and expect ‘24/25 ending to exceed 3 mln mt.
The size of EU crop will become clear over the coming weeks with overall expectations still around 18 mln mt. However, a replication of the 2021 scenario is the biggest risk to shorts.
The EU crops do not look very good, and EU production could be lower. - We would hold cash sales for the present.
Oilseed Market Backdrop
Soybeans
Current market situation
CBOT soybeans posted the 4th consecutive week of declines and broke through prior support, but they did not drop as much as feed grains, which were subject to European harvest pressure. Soybean meal gave back the previous week’s gains and soybean oil was treading water with other vegetable oils.
In the US, crop ratings dropped by 2 points to 70% Gd/Exc but remain well ahead of last year’s 54% Gd/Exc rating. The NOPA crush report showed a better-than-expected May crush of 183.8 mln bu, which was a record for the month and is above trade expectations of 178.3 mln bu. NOPA oil stocks of 1,724 mln pds were down 6% and are below expectations. US export sales fell within expectations, but those were very low.
In S America, BAGE maintained their 50.5 mln mt Argentine crop estimate vs. the USDA's 50 mln mt number. Brazilian fob premiums dropped as Asian demand diminishes.
In Asia, Dalian soybeans and meal fell on the week and vegoils remained range bound.
Meanwhile, EU rapeseed further consolidated as harvest is poised to start this week or next week.
Market outlook
We remain nervous of the weather and remain more interested in spreads than having flat price positions. We continue to think soybeans have too big a premium to corn. The soybean premium has narrowed to 2.48 over new crop corn but should do more.
In our view, where we go from here depends on the weather and how much China buys.
Canola Market
Canola usage
During week 46 of the crop year, growers delivered a solid 453 thousand MT of canola into primary elevators, exports were 132 thousand MT, while domestic disappearance amounted to 170 thousand MT.
YTD total canola disappearance into week 46 of the crop year amounts to 15.7 million MT compared to 16.4 million MT last year and is down 5% on last year.
Visible stocks were at 1.3 million MT, with 811 thousand MT in primary elevators, 134 thousand MT in process elevators, 199 thousand MT in Vancouver/ Prince Rupert, and 168 thousand MT in eastern ports.
Current market situation
Crop conditions are generally viewed as quite good following the improved moisture situation we have witnessed over the past month. Nevertheless, cooler temperatures and excess moisture conditions are causing delays to overall crop development. For example, in SK, the Nipawin area reported 75 mm of precipitation over the past week, followed by the Biggar area at 72 mm. Nipawin was also reported to have experienced frost twice last week, and also got hit by hail over the weekend. Excess moisture in SK has caused moderate crop damage in some areas with some crops yellowing and showing increases in leaf disease. 41% of oilseed crops in SK are shown to be behind normal development.
In AB, many areas around the province have also reported surplus moisture and require consecutive hot days to aid in crop development and health. 65% of AB canola is still shown in Gd/Exc condition.
MB also received variable amounts of precipitation over the past seven days with isolated heavy rains, and severe storms accompanied by strong winds and hail. Many fields in SW MB have standing water in low-lying areas, and some regions experienced hail. The Brandon, Carberry and Virden areas saw some property and crop damage due to strong winds over the weekend.
Weed pressure is generally high due to wet conditions.
In their June report last week, AAFC put the Canadian canola area at 8.7 mln ha (21.4 mln acres), down 3% on last season, with production at 18.1 mln mt (18.3 mln mt last year). The domestic crush is forecast to remain stable at 11 mln mt (10.7 mln mt last year) but could be raised depending on how plants under construction progress. Exports are expected to increase to 6.9 mln mt (6 mln mt this year). The AAFC scenario for ‘24/25 left ending stocks at 2.5 mln mt. – We expect production to be higher and expect ‘24/25 ending to exceed 3 mln mt. [See graph page 5.]
The size of EU crop will become clear over the coming weeks with overall expectations still around 18 mln mt. However, a replication of the 2021 scenario is the biggest risk to shorts. Back then the crop ended up smaller at 17 mln mt, which followed small crops in the two previous years. This was also prior to the borders with Ukraine being opened to more free trade. On the other hand, the EU has become more closed to Russian seed and product imports.
Market outlook
Bids to growers in Canada reflect the crusher bid and remain below the world bids for export seed. We don’t see this changing while the crushers/commercials control nearly all of the export ports and the crush represents 50 percent of the production.
Action
Canola still shows the best return to growers, and we do not expect much of an acreage reduction this year. The EU crops do not look very good, and EU production will be lower. - We would hold cash sales for the present.
Canola – Topics of Interest
June AAFC crop outlook report on canola:
AAFC made no changes to their canola production or use numbers from their May report on the canola balance sheet. The one thing they did change was the average price outlook, which was increased from $705/mt for ‘23/24 canola in May to $710/mt in June. The average price outlook for ‘24/25 was lifted from $675/mt in May to $700/mt in June. This seems to run counter the futures developments over the past month.
Global Biodiesel production:
Increasing production of soybean meal in the US and in South America is driving the use in biofuels and has caused global biodiesel supply to rise to a record high level.
The International Grains Council (IGC) estimates the global production of biodiesel, including HVO (hydrotreated vegetable oil), for 2023 at a record high of 71.5 million tonnes. This is an 11% increase on the previous year which is almost exclusively based on increases in North and South America and Asia. The EU-27 remained the top producer, although production barely changed compared to the previous year.
The 2024 world production will presumably reach a high of 76.3 million tonnes and thus exceed the previous year's output by 7%. In recent years, the US, Brazil and Indonesia have expanded their biodiesel production. As a result, these three countries now account for almost 60% of global production, compared to merely 35% ten years ago. In the US alone, production of biodiesel and HVO nearly doubled to just less than 20 million tonnes since 2020. It is expected to rise further to 21 million tonnes in 2024.
