Canola Market Outlook: May 23, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans - The CBOT soy complex fell 4.5-6% last week, led by soybeans.
Fast US soybean planting progress at 49% compete, a NOPA crush of 173.2 mln bushels that was below trade estimates, NOPA oil stocks of 1,957 mln pounds, which was 130 mln pounds above trade estimates, and export sales of only 17,000 tonnes weighed heavily on the USA market.
Technically, Nov. soybeans look oversold. But we will leave soybeans alone, as we expect the markets to go lower.
Canola – YTD canola disappearance into week 41 of the crop year is 26% above last year’s (drought-reduced) usage (+3.1 million MT) and amounted to 15 million MT compared to 11.9 million MT last year.
The value of the oil in the cost of crushing has reduced considerably and this has reduced the value of canola.
To reach our ‘22/23 canola export forecast of 8.5 mln mt, we need exports to week 52 to reach 146,000 mt per week, which currently looks too high. On the domestic crush side, replacement crush margins have also dropped to just above cost, which might affect total volume crushed. The ‘22/23 balance sheet is being challenged on the usage side of the equation. We do not see the demand pull being maintained over the summer.
We would sell more Nov. canola at $15.00/bu, taking new crop sales to 40 percent.
Oilseed Market Backdrop
Soybeans
Current market situation
The CBOT soy complex fell 4.5-6% last week, led by soybeans. Fast US soybean planting progress at 49% compete, a NOPA crush of 173.2 mln bushels that was below trade estimates, NOPA oil stocks of 1,957 mln pounds, which was 130 mln pounds above trade estimates, and export sales of only 17,000 tonnes weighed heavily on the USA market.
South America remains the cheapest origin for buyers, and Brazil continues to buy export demand from the US. BAGE in Argentina cut its estimate for ’22/23 soybean production to 21 mln mt, from 22.5 mln mt with 69% of the crop harvested. The average yield so far is 1.52 mt/ha (22.6 bu/acre) compared to the USDA’s 1.8 mt/ha (26.8 bu/ac).
The IGC expects Argentina’s old crop soybean production at 23 mln mt. The ICG set global production at 369.1 mln mt for 22/23 and raised their outlook for new crop by 2.2 mln mt to 403.3 mln mt. Ending stocks were shown as 50.2 mln mt and 64 mln mt for ’22/23 and ’23/24, respectively.
In Europe, Matif rapeseed dropped $20.00 /mt to a season low.
Market outlook
S American crop losses are now probably accounted for, but the US still has a full growing season to get through before production is ensured, and with an RSI of 21, soybeans are greatly oversold.
Technically, Nov. soybeans look oversold. But we will leave soybeans alone, as we expect the markets to go lower.
Canola Market
Canola usage
The Canadian Grain Commission reported that during week 41 of the crop year, growers delivered 195 thousand MT of canola into primary elevators, exports were better at 119k MT, while the domestic disappearance amounted to 199 thousand MT.
YTD canola disappearance into week 41 of the crop year is 26% above last year’s (drought-reduced) usage (+3.1 million MT) and amounted to 15 million MT compared to 11.9 million MT last year.
Visible stocks were at 965k MT, with 449 thousand MT in primary elevators, 201 thousand MT in process elevators, 182 thousand MT in Vancouver/ Prince Rupert, and 134 thousand MT in eastern ports.
Current market situation
The value of the oil in the cost of crushing has reduced considerably and this has reduced the value of canola.
To reach our ‘22/23 canola export forecast of 8.5 mln mt, we need exports to week 52 to reach 146,000 mt per week, which currently looks too high. On the domestic crush side, replacement crush margins have also dropped to just above cost, which might affect total volume crushed. The ‘22/23 balance sheet is being challenged on the usage side of the equation. We do not see the demand pull being maintained over the summer.
Regarding new crop seeding, SK Ag. assessed seeding progress for SK canola at only 19% as of May 15th, compared to the average 5-year progress at that date of 53%. AB Ag. reported seeding progress at 39% as of May 16th. MB Ag put canola planting across the province at only 8% complete, but this will change significantly over this ongoing week.
Soil moisture conditions in SK are rated 69% ‘adequate’, and 24% short. In AB, hot and dry weather with the occasional light shower continued to provide relatively good conditions for seeding progress and allowed early emergence across the province. AB soil moisture conditions are rated as 17% poor, 34% fair, 45% good, 4% excellent and 0 % excessive. Soil moisture conditions in MB are shown as optimal to wet. – While seeding got off to a late start, seeding progress has accelerated and conditions have generally improved.
In Europe, Matif rapeseed fell €20 to a 25-month low at the end of last week, and Canadian canola fell to a 21-month low. Asia was mixed with soybeans higher, meal flat but the vegetable oils were all lower with soybean oil making contract lows and rapeseed oil a contract low weekly close.
Market outlook
The next 4-6 months of weather conditions will remain critical for both northern and southern Hemisphere crops. The S American crop losses are already factored into prices, but N American crops will still have to prove themselves.
Action
We would sell more Nov. canola at $15.00/bu, taking new crop sales to 40 percent.
Canola – Topics of Interest
USDA – Global Soybean Production
USDA projects the global soybean crop to hit a record at 410.6 mln mt in 2023/24. This would represent an increase of 11% or 40.2 mln mt from 2022/23.
If this forecast proves correct, soybean production would experience the sharpest year-on-year increase in ten years. The forecast is based on significantly higher yield expectations in Argentina following this year's historic drought. Argentine production is expected to reach 48.0 mln mt, 21 mln mt more than the previous year. Further, Brazil, Uruguay and Paraguay account for more than a quarter of the increase, due to both an expansion in area planted and yield increases. Brazil looks to remain the world's biggest soybean producer with 163.0 mln mt (+8 mln mt). Although the US soybean area looks to remain unchanged, the USDA projects US production up 6.4 mln mt on the previous year to 122.7 mln mt due to anticipated yield increases.
The USDA also expects an increase in global soybean consumption in 2023/24. USDA estimates soybean consumption to reach 386.5 mln mt, ~21.4 mln mt more than the previous year. With world production at 410.6 mln mt, this would result in an expected supply surplus of 24.1 mln mt. This means that ending stocks 2023/24 will likely rise for the second year running to 122.5 mln mt, thus exceeding the previous year's volume by 21.5 mln mt and setting a new record high.
Soybeans are the lead oilseed commodity, which is why a burdensome balance sheet for soybeans will affect other oilseeds negatively as well.