Canola Market Outlook: March 27, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – The CBOT soybean complex showed sizeable gains on Friday, but this was not enough to erase the losses sustained earlier in the week.
Funds were large sellers across the complex, although they still hold sizeable longs in soybeans and meal. However, they are short oil for the first time in almost three years.
On the chart, soybeans look oversold.
Canola – YTD canola disappearance into week 33 of the crop year is 23% above last year’s usage (+2.3 million MT) and amounted to 12.2 million MT compared to 9.9 million MT last year.
Prices for canola have dropped because the oil price returns less revenue to the crush. However, we assume that China will continue buying canola as rapeseed oil remains at a 6% premium to soybean oil in that market.
We think the market was overdone. We see no reason to sell canola at current levels.
Oilseed Market Backdrop
Soybeans
Current market situation:
Like in corn and wheat, the CBOT soybean complex showed sizeable gains on Friday, but this was not enough to erase the losses sustained earlier in the week.
In South America, Argentina’s BAGE left Gd./Exc. ratings unchanged at 2% and left the crop at 25 million MT. The agency cautioned that more reductions were likely if the ‘worse than expected yields’ continue to come in. In Brazil, premiums went into freefall losing around 50¢ as the storage issues for the record crop increased.
According to the Rosario Grain Exchange (RGE), Argentina has imported 400 thousand MT of soybeans in Jan./Feb. 2023 and 170 thousand MT have arrived from Brazil so far in March. RGE expects a total of 7.9 million MT imports for the season, which matches the idea that 8 million MT is the peak of the Argentine import capabilities.
Market outlook:
Where the market goes depends on what the USDA has to say on planting intentions. It should be noted that, in our view, the ratio favours the planting of corn rather than soybeans. The ratio currently for new crop stands at 2.27. We think the USDA will say growers will plant more soybeans, which should narrow the ratio further and give the opportunity to sell corn and buy soybeans in the new crop.
Canola Market
Canola usage:
The Canadian Grain Commission reported that during week 33 of the crop year, growers delivered 365 thousand MT of canola into primary elevators, exports were at 189 thousand MT, while the domestic disappearance amounted to 199 thousand MT.
YTD canola disappearance into week 33 of the crop year is 23% above last year’s usage (+2.3 million MT) and amounted to 12.2 million MT compared to 9.9 million MT last year.
Visible stocks dropped to 1.19 million MT, with 667 thousand MT in primary elevators, 235 thousand MT in process elevators, 178 thousand MT in Vancouver/ Prince Rupert, and 115 thousand MT in eastern ports.
Current market situation:
Prices for canola have dropped because the oil price returns less revenue to the crush. However, we assume that China will continue buying canola as rapeseed oil remains at a 6% premium to soybean oil in that market. Matif rapeseed and ICE canola both ended lower despite late week bounces, while Asian vegetable oils were all down 10-15% on the week.
We believe that StatsCan has underestimated the canola crop size. However, if you believe the StatsCan estimate, the balance sheet would be showing that we are running out of seed, and that exports or the crush must be lowered. We think the available supply was somewhat higher. Also, we are using CGC export/ domestic use numbers, which are not the same as StatsCan numbers.
Market outlook:
Going forward, the oilseed sector will be determined Fund money flows, the outcome of the Argentine crop, next week's USDA US stocks and seeding reports. Rising world financial uncertainty will keep volatility high. For now, canola sales to China are still supported by the premium of rapeseed oil over soybean oil.
Action:
We see no reason to sell canola at current levels.
Canola – Topics of Interest
February Canola Crush:
Statistics Canada published the February canola crush numbers at 812 thousand MT, for an August 2022 to February 2023 total of 5.7 million MT. This is 28% higher than last year’s drought reduced crush, and also ~420 thousand MT higher than in 2020/21. Annualizing the YTD crush would give us 9.8 million MT for the full crop year.
