Canola Market Outlook: March 20, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – CBOT soybeans and soybean meal showed sharp losses last week. However, despite the decline in crude oil, soybean oil managed a higher close.
Commodity Futures Trading Commission (CFTC) data had the soybean speculative traders an additional 27,000 contracts net long than the week prior.
We prefer to avoid both old and new crop for the present. With further losses in Argentina, we could see oil gain in share of the crush.
Canola – YTD canola disappearance into week 32 of the crop year is 23% above last year’s usage (+2.2 million MT) and amounted to 11.8 million MT compared to 9.6 million MT last year.
Prices have been pressured by the size of the Australian canola crop (8.3 million MT), but we think the Australian increase in exports will be limited by fobbing capacity restrictions.
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 ~$16-16.50/bu.
Oilseed Market Backdrop
Soybeans
Current market situation:
CBOT soybeans and soybean meal showed sharp losses last week. However, despite the decline in crude oil, soybean oil managed a higher close when NOPA oil stocks came in 12% lower than last year. This is despite a 90% drop in cumulative export commitments and a higher oil yield. CFTC data had the soybean speculative traders at a 157,220 contract net long as of March 7. That was a 27,000 contract stronger net long than the week prior, given both new longs and closed shorts.
In South America, the Buenos Aires Grains Exchange (BAGE) lowered their soybean production estimate by 4 million MT for a 25 million MT Argentine soybean crop. Oilseed crush in Argentina crush was called "in crisis" with almost 70% of capacity currently idle.
The Brazilian biodiesel mandate will be raised from the current 10% level (B10) to 12% (B12) from April with a progressive ramp-up in mandates scheduled to reach 15% (B15) by 2026, the country’s national energy policy committee CNPE decided on Friday.
The International Grains Council (IGC) cut 2022/23 world production by 8 million MT to 370 million MT, with carryout down 3 million tonnes from February at 46 million tonnes. Their initial new crop production estimate is up 29 million MT at 399 million MT, with stocks increasing by 10 million MT to 56 million MT.
Market outlook:
In our view, new crop soybeans are too cheap compared to corn and we prefer to avoid both old and new crop for the present. With further losses in Argentina, we could see oil gain in share of the crush.
Canola Market
Canola usage:
The Canadian Grain Commission reported that during week 32 of the crop year, growers delivered 448 thousand MT of canola into primary elevators, exports were at 196 thousand MT, while the domestic disappearance amounted to 217 thousand MT.
YTD canola disappearance into week 32 of the crop year is 23% above last year’s usage (+2.2 million MT) and amounted to 11.8 million MT compared to 9.6 million MT last year.
Visible stocks were shown at 1.28 million MT, with 700 thousand MT in primary elevators, 221 thousand MT in process elevators, 238 thousand MT in Vancouver/ Prince Rupert, and 122 thousand MT in eastern ports.
Current market situation:
Prices have been pressured by the size of the Australian canola crop (8.3 million MT). Nevertheless, we think the Australian increase in exports will be limited by fobbing capacity restrictions, especially given the size of the wheat export shipments. Traders also consider the StatsCan crop estimate to be understated, as do we. We expect continued good Canadian exports to China, as well as to Mexico and Japan. In our calculations, exports of seed now yield better margins than domestic crush, so the best bids should come from the companies that don’t rely on crush (G3, P&H).
Market outlook:
Matif rapeseed and Canadian ICE canola both fell to their lowest levels since 2021, and Asian markets all made multi-week lows, with soybean oil and rapeseed oil hitting contract lows midweek. We expect developments in macros (bank crisis), size of the reduction in Argentine crush volume, and US soybean planting numbers and Ukraine oilseed numbers to be the key inputs to the market over the next while.
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
European Union Rapeseed Imports:
Although Canadian canola exports to the European Union have declined by 62% (-341 thousand MT) from last crop year (July 2022 through February 2023), total 2022/23 EU rapeseed imports from all origins have increased by 45% to 4.6 million MT. Ukraine has been the top exporter and accounts for 56% of EU-27 rapeseed exports (2.6 million MT). Australia with its biggest rapeseed crop ever now ranks second with 36.4% market share (1.7 million MT). In contrast, Canadian exports to the EU have dropped to 4.2% market share (193 thousand MT).
The bottlenecks to Ukrainian shipments that were dreaded last year were mitigated by suppliers establishing alternative delivery routes to the closed or blockaded seaports. Ukraine oilseeds were primarily shipped to EU member states bordering Ukraine.
International Grains Council (IGC) – Global Soybean Supply and Demand
The IGC sees the 2022/23 global soybean output rise by 4% year-over-year. A big Brazilian crop is more than offsetting smaller harvests elsewhere, notably in Argentina. However, with uptake advancing modestly, stocks are set to tighten. Depending on shipments to China, Argentina and a range of other buyers, trade is forecast to rise solidly (+7%).
The 2023/24 global soybean output is projected to expand by 29 million MT year-over-year due to acreage gains and improved yields. Amid expanded use of soybean products in feed, food and industrial sectors, uptake is seen at a new high, with stock accumulation likely. The 2023/24 soybean trade is predicted at a record of 173 million MT (+4%).
