Canola Market Outlook: November 20, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans: Soybeans fell by 11 ¼ to 20 c/bu across the front months last Friday due to improved rain forecasts for Brazil, leaving January futures with a net 7 ¼ c/bu loss for the week. However, Soybean meal ended up higher and soybean oil closed 31 to 38 points higher.
The US soybean crush reached 189.8 million bushels last month, the largest crush for any month on record.
Crush margins are excellent, and China continues to buy.
Canola: AAFC reduced their ‘23/24 canola export number to 7.7 million MT and we may have to do the same if exports beyond week 15 do not improve.
However, Chinese soybean meal is retesting recent highs, and vegetable oils are also firm, breaking out of recent trading ranges.
While China continues to buy, we do not suggest selling additional canola, assuming we are already 80% sold.
Oilseed Market Backdrop
Soybeans
Current market situation
Soybeans fell by 11 ¼ to 20 c/bu across the front months last Friday due to improved rain forecasts for Brazil, leaving January futures with a net 7 ¼ c/bu loss for the week. It was soybean meal that led soybean futures lower on Friday with 2.4% to 2.9% losses of as much as $13.50/MT. But despite the pullback on Friday, meal was still up $3.90 for the week. However, soybean oil was the outlier on Friday, closing 31 to 38 points higher.
Weekly CoT data showed managed money firms bought 16k soybean Ct’s during the week, leaving the group 88k contracts net long. Commercial soybean hedgers added18k Ct’s to their shorts to 166k Ct’s. Spec traders added 19k Ct’s to their soybean meal long to 131k Ct’s. And managed money firms at 6.6k Ct’s were 3.7k Ct’s less net short in soybean oil.
The US soybean crush reached 189.8 million bushels of soybeans last month, up 14.7% from the 165.5 million bushels processed in September and up 2.9% from the October 2022 crush of 184.5 million bushels. It was the largest crush for any month on record, topping the previous all-time high of 186.4 million bushels crushed in December 2021. Regarding exports, barge rates are rapidly declining on the Mississippi and barge traffic is up 26% on last week thanks to the improved water levels. Everything cannot move at once and it seems that corn and soybeans are being prioritized.
In international news, BAGE in Argentina raised their planted soybean area for ‘23/24 by 1% to 17.3 million ha (~42.5 million ac). The crop was shown 18% planted. Javier Milei has won Argentina’s presidential election. Milei has suggested economic shock therapy to deal with inflation (currently at 143%), such as shutting the Central Bank, ditching the peso in favour of the dollar, curbing grain export taxes, and slashing spending. He is facing a hostile Congress, so his proposals may take a while to be a market factor.
Market outlook
While soybeans closed a little lower last week, we still think they are overpriced to corn, so we retain our long March corn against short March soybeans. However, crush margins are excellent, and China continues to buy
Canola Market
Canola usage
The Canadian Grain Commission reported that during week 15 of the crop year, growers delivered 281 thousand MT of canola into primary elevators, exports were at 147 thousand MT, while the domestic disappearance showed 177 thousand MT.
YTD canola disappearance into week 15 of the crop year amounts to 4.9 million MT compared to 4.9 million MT last year and is down 1% on last year.
Visible stocks were shown at 1.1 million MT, with 593 thousand MT in primary elevators, 202 thousand MT in process elevators, 167 thousand MT in Vancouver/ Prince Rupert, and 159 thousand MT in eastern ports.
Current market situation
Canola crush margins remain quite good, and one gets the impression that the large elevator companies are protecting their crush margins, while keeping exports down. However, there is little question that the Chinese are buying soybeans for the soymeal crush and need less oil this year.
Meanwhile, AAFC reduced their ‘23/24 canola export number to 7.7 million MT (8 million MT previously) and we may have to do the same if exports beyond week 15 do not improve. We, like many, have little time for the government estimates - they invariable end up being followed by corrections.
In Europe, Matif rapeseed gave back most of the week’s gains and it seems European farmers have selling targets anywhere near €450/MT (~C$676/MT). Segments of the River Rhine were shut down due to high water levels (after having had shipping problems due to low water levels over the summer). ICE canola was also lower but is presently back up above $710/MT on the strength of comparable vegetable oils.
Chinese soybean meal is retesting recent highs, and vegetable oils are also firm, breaking out of recent trading ranges.
Market outlook
There are still challenges to the Brazilian crop due to ongoing heat and dryness in the North and excessive rain in the South. There are also calls to lower the crop in Paraguay. However, the expected recovery in Argentina could potentially still keep the overall S American crop at record levels. (USDA still is at 221 million MT for S American soybeans for ‘23/24 vs. 192.1 million MT in ‘22/23). – We will have to see how this develops.
Action
It is a short week for futures (due to US Thanksgiving) and while China continues to buy, we do not suggest selling canola, assuming we are already 80% sold.
Canola – Topics of Interest
AAFC canola balance sheet
As mentioned, AAFC lowered their outlook for ‘23/24 canola exports to from 8 to 7.7 million MT. AAFC left domestic crush unchanged at 10 million MT. Total canola usage is shown at just under 18 million MT, against a 19 million MT supply. Ending stocks are expected to drop to 1 million MT. We think ending stocks could rise to 1.6 to 2 million MT unless exports improve significantly.
Vegetable oil values in Dalian, China
Vegetable oil values shown on the Dalian Commodity Exchange (DCE) have risen from earlier values to 8,374 CNY/MT for soybean oil and to CNY8,741/MT for rapeseed oil. However, the premium of rapeseed oil over soybean oil has fallen back to 4% from 8% in April ’23, and from a high of 23% in October ’21.
