Canola Market Outlook: May 13, 2024
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans: Soybeans ended little changed, meal gave back much if its early gains, and soybean oil had a late rally on rumours that the US Gvmt. would protect against Chinese Used Cooking Oil (UCO) imports.
We consider the WASDE report a little bearish on oilseeds. We also think that the floods in the south of Brazil (RGDS) were too late to damage soybeans materially.
In our view, soybeans remain overpriced versus corn.
Canola: YTD total canola disappearance into week 40 of the crop year amounts to 13.3 million MT compared to 14.65 million MT last year and is down 9% on last year.
According to StatsCan, Mch. 31 stocks are up a full 17.5% compared to last year’s (Mch. 31/’23) stocks of 7 mln mt.
We suggest selling any remaining old crop canola.
Oilseed Market Backdrop
Soybeans
Current market situation
The soybean complex had a choppy week: Soybeans ended little changed, meal gave back much if its early gains, and soybean oil had a late rally on rumours that the US Gvmt. would protect against Chinese Used Cooking Oil (UCO) imports. If they do, this should give support to soybean oil.
The USDA-WASDE report offered little for old crop, and new crop stocks of 445mbu were a little above trade expectation. US new crop soybean production was pegged at 4.45 bln bu, right on the average trade guess. There was no change in Chinese import demand at 105 mln mt for ‘23/24 and at 109 mln mt for ‘24/25 (despite Chinese Gvmt. lowering imports to 94.6 mln mt). The US new crop exports were also raised 125 mln bu. Brazilian soybean production was lowered 1 mln mt to 154 mln mt, while Argentina was unchanged at 50 mln mt.
We consider the WASDE report a little bearish on oilseeds. We also think that the floods in the south of Brazil (Rio Grande do Sul; RGDS) were too late to damage soybeans materially.
EU rapeseed production estimates declined by 1 mln tonnes to 19 mln tonnes, with the losses centered on Romania, Poland and Germany.
Market outlook
Soybeans seem vulnerable if ‘24/25 US ending stocks are really trending towards 450 mln bu or higher. It currently seems unlikely South American downgrades will be large enough alter the trajectory if US stocks are that high.
Chinese demand remains a focus from here as the USDA and Chinese government diverge on import requirements and thus the other big variable.
In our view, soybeans remain overpriced versus corn.
Canola Market
Canola usage
During week 40 of the crop year, growers delivered 257 thousand MT of canola into primary elevators, exports were 177 thousand MT, while domestic disappearance amounted to 175 thousand MT.
YTD total canola disappearance into week 40 of the crop year amounts to 13.3 million MT compared to 14.65 million MT last year and is down 9% on last year.
Visible stocks were at 1.24 million MT, with 707 thousand MT in primary elevators, 197 thousand MT in process elevators, 202 thousand MT in Vancouver/ Prince Rupert, and 138 thousand MT in eastern ports.
Current market situation
The year-to-date exports are close to 2 mln tonnes below the previous year’s, which provides good crush margins for the major companies at the expense of growers.
Growers and their Associations should be worried about the Bunge/Viterra merger as this would lessen competition in an already oligopolistic structure and would reduce grower returns. - Fewer exports mean better domestic margins.
Last week, StatsCan pegged canola stocks as of Mch. 31/’24 at 8.26 mln mt, with 6.69 mln mt left on farm at that time. Mch. 31 stocks are up a full 17.5% compared to last year’s (Mch. 31/’23) stocks of 7 mln mt. Traders had expected stocks to come in at 8.3 mln mt.
Here is a graph depicting historic stock developments:
In Europe, rapeseed remains well supported because of new crop uncertainty in the EU and while Canada is just starting to seed. USDA last week lowered EU rapeseed production estimates by 1 mln mt to 19 mln mt (a three-year low), with the losses centered on Romania, Poland and Germany. Australian production was pegged at 6.5 mln mt, which still is the third largest crop on record. Ukraine should see a smaller rapeseed crop against a stable/higher sunflower seed crop (~3mlnmt and 15-16 mln mt, respectively). Meanwhile, Canadian production could be solid on the higher rapeseed price at 19-19.5 mln mt. – USDA pegged global rapeseed production at 88.3 mln mt, basically unchanged from last year.
Market outlook
Chinese demand and Cdn. participation in the export market remain the focus.
We do not think that the South American downgrades (and problems in RGDS) are large enough to keep supporting soybeans/ oilseeds.
Action
We suggest selling any remaining old crop.
Canola – Topics of Interest
USDA: Global rapeseed outlook to 2024/25
USDA projects global rapeseed production in 2024/25 to be almost unchanged at 88.3 million mt. USDA expects Canada to reclaim its position as the world’s largest producer after being surpassed by the EU for the past 3 years. Meanwhile, the EU is expected to face a 5% decline in rapeseed production to 19 mln mt. Production gains in Australia and Bangladesh are expected to mostly offset losses in Ukraine and India.
Global rapeseed carryout is expected to decline in 2024/25 to 7.8 mln mt (from 8.2 mln mt in ‘23/24), with Canada and Australia drawing down stocks by increasing exports. Global exports are projected to grow modestly to 17.6 mln mt (from 16.7 mln mt) with higher production in Australia. Exports from Canada are also projected to strengthen on EU demand due to a smaller crop. Global rapeseed crush is unchanged with increases in Canada and Bangladesh offset by declines in China, Ukraine, and the United Kingdom.
Rapeseed oil trade is expected to be lower next crop year due to declining China imports more than offsetting higher U.S. imports. Higher consumption in the U.S. industrial sector is expected to drive global industrial usage up 2%. Rapeseed oil for global food use is expected to be up 3%.
