Canola Market Outlook: March 4, 2024
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans: Soybeans closed 5.2 cents per bushel higher on the May contract. Soybean futures were stronger as buyers of cheap South American premiums bought USA futures to price cash soybeans.
The weekly Commitment of Traders report showed managed money funds adding new soybean shorts during the week that ended 2/27. That grew their net short by 24,000 contracts to 160,700 contracts.
CME reported another 225 March bean contracts were issued for delivery overnight.
Brazil’s soybean harvest was reported at 46%. That compares to 43% at the same point last year.
NASS Fats & Oils report confirmed 194.8 mln bushels of soybeans were processed in January. That was under the average trade guess and was down 4.6% from December’s volume. Crush was still1.9% above January last year.
Argentine crop ratings were little changed as were cash markets and Buenos Aries continue to hold production at 52.5 mln mt.
South American production will likely be a record when all origins are accounted for. The weather will still need to be watched.
USA cash soybeans are overpriced compared to South American.
USA soybean Export sales were again disappointing at just 160,000 tonnes and left cumulative sales down 20%.
Canola: May contract canola futures rose by $5.20/mt over the week.
EU rapeseed was quiet, and imports remain behind last year, but domestic crushing is running at record levels.
Total Canola disappearance YTD is 9.6 mln mt compared to 11.0 mln mt this time last year.
Canola exports remain poor due to the cost of getting low protein meal to users compared to cheaper, high protein, soymeal.
China is the main buyer, but this year Australia is our competition and Australia’s product is cheaper.
Canadian exports through week 30 are 3.365 mln tonnes and may reach 6.5 myn tonnes by week 52 leaving a large carryover.
Oilseed Market Backdrop
Soybeans
Current market situation
Soybeans closed 5.2 cents per bushel higher on the May contract. Soybean futures were stronger as buyers of cheap South American premiums bought USA futures to price cash soybeans.
US weekly sales recovered slightly from the previous week but were still small at 159,700 mt. Total sales are now 20% less than last year. USA cash soybeans are overpriced compared to South American.
NASS Fats & Oils report confirmed 194.8 mln bushels of soybeans were processed in January. That was under the average trade guess and was down 4.6% from December’s volume. Crush was still1.9% above January last year.
Brazil’s soybean harvest was reported at 46%. That compares to 43% at the same point last year. Argentine crop ratings were little changed as were cash markets and Buenos Aries continue to hold production at 52.5 mln mt. South American production will likely be a record when all origins are accounted for. The weather will still need to be watched.
Market outlook
In the short term, Chinese buying of USA futures will support prices. Further out, soybeans futures look overpriced compared to corn, so May futures still need to go lower in our view.
USA soybeans are expensive compared to South America. Brazil is in the throws of harvest, and Argentina’s crop is shaping up to be large.
Canola Market
Canola usage
In week 30 growers delivered 372,000 tonnes exports were a poor 77,500 tonnes and domestic usage was said to be 162,700 tonnes. Canadian exports through week 30 are 3.365 mln mt and may reach 6.5 mln mt by week 52 leaving a large carryover.
Current market situation
Canola exports remain poor. There is plenty of oil around and there are not enough buyers of the low protein meal that is around but costs more to get to destination markets. China is the main buyer, but this year Australia is our competition and cheaper.
Crush margins have declined and are poor for small plants.
Market outlook
South America is shaping up to have a large crop, but Argentia’s crop is not done yet, so the weather will need to be watched.
Chinese traders buying USA soybean futures is supportive, but the downward trend, although tested today, remains unbroken and USA soybeans are expensive compared to both USA corn and South American soybeans.
Crush margins have weakened and there is lots of vegoil available while buyers are preferring soymeal over lower protein canola meal.
It is going to be tough to reach our export targets and, as usual, AAFC/StatsCan is once again wrong. Crusher bids are a little better than those for export especially at the big plants where they are finding it tough to source seed, so we expect “basis” levels to narrow. We are not reducing our export estimate yet but will be forced to if exports don’t improve.
Action
We do not recommend more cash sales currently and are considering buying in our July short.
Canola – Topics of Interest
AAFC: Canada’s January Canola Crush
According to the AAFC, Canada’s January Canola crush was 936,593 mt. Pre-July 2023, this would have been the second largest monthly volume ever. Given the recent upgrades and strong crush performance, January’s crush volume was just the third largest month this season, and down 6.7k mt from December’s volume.
Canada has crushed an Aug-Jan total of 5.5 mln mt which is 13% ahead of last year’s pace. Annualizing the current pace would take Canada’s crush to 11.0 mln mt which would be 1.0 mln mt more than the previous year.
February is seasonally a slow month, so it will be interesting to see if this trend continues once the data comes out.
