Canola Market Outlook: June 5, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans - CBOT July soybeans traded in an incredible 84 1/2 cent range last week. July soybeans ended 15 1/4 cents higher. Soybean oil gained $15.00 /mt and meal lost $4.40 /lb.
The pickup in US meal sales is interesting, but the last word remains demand, in what still looks like a fragile world picture with the common theme from China is one of a disappointing demand recovery.
The corn/soybean ratio for new crop dropped to 2.16, which we think is a good level to own it. The new crop soybean chart looks oversold and could be a short-term spec. Otherwise, we prefer to leave soybeans alone.
Canola – YTD canola disappearance into week 43 of the crop year is 28% above last year’s (drought-reduced) usage (+3.4 million MT) and amounted to 15.7 million MT compared to 12.3 million MT last year.
The handling numbers give the impression that the Canadian crop is smaller and either exports or the crush will need to reduce. However, foreign buyers don’t seem to be concerned as Matif rapeseed ended down and canola was even weaker while plantings progressed well in Canada.
There could be a squeeze on July Winnipeg futures as the open contracts stand at 98,674 contracts, which is considerable given we are in June and given the lower visible stocks.
Overall, the supply outlook remains more than positive, and destination market demand remains very weak.
We would leave canola alone but be ready to sell if a July rally helps November values.
Oilseed Market Backdrop
Soybeans
Current market situation
CBOT July soybeans traded in an incredible 84 1/2 cent range last week. Soybeans traded their lowest levels since January 2022, but rebounding to post the highest closing price since May 16th. For the week, July soybeans ended 15 1/4 cents higher. Soybean oil gained $15.00 /mt and meal lost $4.40 /lb. US planting reached 91% complete as of June 4th, the fastest since 2012 and the 2nd earliest since 2000. The 5-year average progress is 76%.
The USDA monthly crush for April was 187 mln bu against a trade guess of 185 mln bu, and up against 181mln bu in April of last season. Soybean oil stocks were above the trade guess at 2,540 mln bu, but this didn't stop the oil share regaining some positive momentum. Farmer selling in the US is lackluster with an uncertain June forecast holding them back for now.
However, the rally on futures has not been replicated in international cash markets with sunflower oil values weakening and South American soybean oil basis quickly shifting lower to try offset the board gains.
In Argentina, BAGE estimated the Argentine soybean harvest at 87% complete against 97% last season and a 96% average, and BAGE maintained their crop estimate at 21 mln mt (USDA 27 mln mt). World soybean meal spreads continue to converge amid a sharply reduced Argentine crush and meal exports, and this was reflected in another strong week in meal sales in the US, although despite this, CBOT oil share rose for a 3rd straight week.
In China, Dalian meal and vegoil markets all lost ground trading down to multi-month lows despite the 7-month low in the Yuan, with domestic demand in China still questioned.
Market outlook
The US weather debate for now is more centered on corn than soybeans, but an earlier than usual crop also pulls forward the weather risk to soybeans. The pickup in US meal sales is interesting, but the last word remains demand, in what still looks like a fragile world picture with the common theme from China is one of a disappointing demand recovery.
The corn/soybean ratio for new crop dropped to 2.16, which we think is a good level to own it. The new crop soybean chart looks oversold and could be a short-term spec. Otherwise, we prefer to leave soybeans alone.
Canola Market
Canola usage
The Canadian Grain Commission reported that during week 43 of the crop year, growers delivered 171 thousand MT of canola into primary elevators, exports were better again at 187k MT, while the domestic disappearance amounted to 203 thousand MT.
YTD canola disappearance into week 43 of the crop year is 28% above last year’s (drought-reduced) usage (+3.4 million MT) and amounted to 15.7 million MT compared to 12.3 million MT last year.
Visible stocks were at 762k MT, with 325 thousand MT in primary elevators, 154 thousand MT in process elevators, 180 thousand MT in Vancouver/ Prince Rupert, and 103 thousand MT in eastern ports.
Current market situation
There are good stocks in Vancouver, so exports for week 44 should be reasonable. The numbers give the impression that the Canadian crop is smaller and either exports or the crush will need to reduce. However, foreign buyers don’t seem to be concerned as Matif rapeseed ended down and canola was even weaker while plantings progressed well in Canada.
There could be a squeeze on July Winnipeg futures as the open contracts stand at 98,674 contracts, which is considerable given we are in June and given the lower visible stocks. To reach our export estimate, we need 143,000 tonnes of exports per week.
There are some concerns about dryness building for N. Europe as some of the later crops conclude flowering and head for pod development, but overall, the EU should have good crops. The Ukrainian Ag Ministry also downplayed their oilseed crop, with the trade also debating the impact of ongoing dryness there.
The 2023 canola crop in Canada seems to be off to a good start, with 81% of SK canola rated in good to excellent condition, 16% in fair condition, and 3% in poor condition. In AB conditions remain variable, with surface soil moisture declining across the province by 18 % to 65% poor to fair and only 35% good to excellent. Still emergence is ahead of the 5-year average at 67% per cent for canola and is also 23 % ahead of the 5-year average. In MB canola generally looks good, though there is some concern from producers with canola seed sitting in dry soil, rainfall would be welcomed.
Market outlook
Overall, the supply outlook remains more than positive, and the recent drop in Black Sea sunflower oil values to the low $800’s speaks to the vegetable oil supply and demand outlook. In particular, destination market demand remains very weak in both India and China.
It is the tangibly weak demand picture for the products that dominates conversations and price action in cash markets. The trade is onging for consumer confidence to return, which more than anything is the actual trigger needed to get fundamentally bullish the protein complex.
Action
We would leave canola alone but be ready to sell if a July rally helps November values.
Canola – Topics of Interest
June ABARES (Australia) update
ABARES today cut their estimate for the ‘23/24 Australian canola production from 5.43 mln mt previously to 4.9 mln mt.
UFOP: Sharp decline in rapeseed prices
Stock exchange prices for rapeseed have been falling almost continuously since the beginning of the year. Temporarily, they even slid below the level of EUR 400 per tonne for the first time since November 2020. According to UFOP, this development is partly due not only to expected good global market supply of rapeseed, but also to imports of used waste oils and fats from China and biodiesel produced from them (UCOME - Used Cooking Oil Methyl Ester) in the amount of approximately 500,000 tonnes since the end of 2022.
UFOP – Union for the Promotion of Oil and Protein Plants. UFOP was founded in 1990 by the German Farmers' Association (Deutscher Bauernverband e. V.) and the German Plant Breeders' Association (Bundesverband Deutscher Pflanzenzüchter e. V.). In an association structure that remains unique to this day, UFOP represents the political interests of companies, associations and institutions that are involved in the production, processing and marketing of domestic oil and protein plants in national and international committees.