Canola Market Outlook: March 13, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – The monthly USDA-WASDE report last week featured an 8 million MT drop in Argentine soybean production, which was bigger than expected. Still, soybean prices dropped, but not as much as corn or wheat. A muted market reaction to a report which has both US and global stocks (excluding China) declining.
Aside from the USDA report, the vegetable oil market and its collapse to a much lower range is a stark reminder of the fickleness of the market. The lesson from vegetable oils is to give due consideration the demand side when prices get to demand-rationing levels.
The ratio between corn and soybeans has improved and stands at 2.45 basis futures. We are even on old crop and prefer to leave the new crop alone for now.
Canola – YTD canola disappearance into week 31 of the crop year is 21% above last year’s usage (+2 million MT) and amounted to 11.4 million MT compared to 9.4 million MT last year.
The crush margin has now significantly narrowed, so we can anticipate China to take less volume going forward.
The drop in global vegetable oil values has an elevated effect on rapeseed/ canola with its high oil content. We are sold on old crop but would still like to take on some new crop canola sales. We are chasing the market but, if possible, we would sell 25% at ~$16.50/bu.
Oilseed Market Backdrop
Soybeans
Current market situation:
The monthly USDA-WASDE report last week featured an 8 million MT drop in Argentine soybean production, which was bigger than expected. However, the Argentine crush was lowered by 3.6 million MT, with China down 2 million MT, in line with the earlier WASDE numbers. Global soybean stocks were lowered 2 million MT from last month and are now up just 1 million MT compared to last year. Stocks outside China fell 4 million MT and are now down 2 million MT on the year. Still, soybean prices dropped, but not as much as corn or wheat. A muted market reaction to a report which has both US and global stocks (excluding China) declining.
In US trade, 184 thousand MT of US old crop soybeans were sold to ‘unknown destination’ (likely China). Sales were net negative for old crop due to Pakistan cancelling 132 thousand MT and unknown cancelling 307.6 thousand MT for a marketing year low.
Market outlook:
There are still questions around the Argentine soybean situation: Is the 8 million MT drop to 33 million MT enough of a cut when the Rosario Grain Exchange put their soybean production estimate below the USDA number at 27 million MT? And, will the increase in Argentine imports by 1.75 million MT to 8 million MT be enough to sustain meal exports?
Aside from the USDA report, the vegetable oil market and its collapse to a much lower range is a stark reminder of the fickleness of the market. There are two sides to every Supply & Demand and the meal market is focused solely on the supply side of the balance sheet. The lesson from vegetable oils is to give due consideration the demand side when prices get to demand-rationing levels.
Meanwhile, the ratio between corn and soybeans has improved and stands at 2.45 basis futures. We are even on old crop and prefer to leave the new crop alone for now.
Canola Market
Canola usage:
The Canadian Grain Commission reported that during week 31 of the crop year, growers delivered 432 thousand MT of canola into primary elevators, exports were at 224 thousand MT, while the domestic disappearance amounted to 169 thousand MT.
YTD canola disappearance into week 31 of the crop year is 21% above last year’s usage (+2 million MT) and amounted to 11.4 million MT compared to 9.4 million MT last year.
Visible stocks were shown at 1.28 million MT, with 662 thousand MT in primary elevators, 206 thousand MT in process elevators, 285 thousand MT in Vancouver/ Prince Rupert, and 122 thousand MT in eastern ports.
Current market situation:
Year-to-date total deliveries of canola into the handling system over total YTD usage (export and crush) are at 470 thousand MT, so the pipeline remains relatively tight.
Regarding exports, it should be noted that China has been by far the biggest export buyer this year. We expected this because oil was such a big contributor to the crush margin. The crush margin has now significantly reduced [see vegetable oil comments above], so we can anticipate China to take less volume going forward. In our balance sheet, we have reduced the crush a little, as we expect oil exports to become smaller.
Australia has a large crop and will compete for the Chinese market. ABARES in Australia increased their number for the 2022/23 canola crop from 7.3 million MT in December to a record 8.3 million MT in March.
Market outlook:
The drop in global vegetable oil values has an elevated effect on rapeseed/ canola with its high oil content. This is why rapeseed and canola markets have dropped precipitously, with a strong downward momentum. Ukraine can potentially produce a record volume of oilseeds next season and European Union crops look good, making the supply outlook look healthy for that particular market. Biodiesel values in Europe are down $160/MT over the past week as diesel/crude market retest recent lows.
Action:
We are sold on old crop but would still like to take on some new crop canola sales. We are chasing the market but, if possible, we would sell 25% at ~$16.50/bu.
Canola – Topics of Interest
Canadian Canola Exports:
Statistics Canada published the January 2023 exports by destination last week. For canola, they amounted to 693 thousand MT, for YTD total canola exports of 4 million MT. This is up by almost 600 thousand MT from last YTD’s volume of 3.4 million MT.
Big volume increases over last year are to China (+1.1 million MT) and to Pakistan (+203 thousand MT). Sizeable reductions in exports compared to last years have occurred to the EU (-314 thousand MT), to Japan (-229 thousand MT) and to the UAE (-185 thousand MT).
We expect crop year canola exports to reach 9.5 million MT.
