Canola Market Outlook: November 21, 2022
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybean futures had a volatile week trading in a 50 cent per bushel range, closing out the week at $14.27 basis and the January about 20 cents lower.
The market opened today a little weaker for soybeans and canola followed soy oil lower. However, soybeans rallied and closed at $14.36 on the January.
Soybeans initially followed grain markets lower as news from Russia/Ukraine suggested that exports from the Black Sea would continue beyond November 19.
Funds reduced their long by selling 11,000 contracts to end the week holding 93,000 contracts long. They increased their long in soy oil to 110,371 contracts long.
Crush margins remain excellent.
Canola and Matif rapeseed futures followed soybeans and closed lower for the week in a thin trade.
Oilseed Market Backdrop
Soybeans
Current market situation:
The markets are thin and opened mixed. We don’t expect much movement with this being a short week in the United States due to the Thanksgiving holiday. We are seeing more soy oil being used for fuel as the Russian/Ukraine dispute has strengthened energy prices. Traders report Funds reduced their net long by 10,900 contracts by rolling existing longs to shorts. That left the group 92,965 contracts of soybeans net long as of the November 15 close. Funds were also said to be 5,161 contracts more net long in soy oil through the week to 110,371 contracts. That would be their strongest net long of soy oil since February 2021.
It remains dry in Argentina and there is talk of an even smaller soybean crop. China continues to buy beans and we fully expect that this season we will see China buy 100 million MT rather than the USDA’s estimate of 94 million MT. The corn-soybean ratio showed 2.13, which in our view is too low.
Market outlook:
We expect crush margins to continue to be excellent. The corn-soybean ratio weakened to 2.13 which we think is too low and if it stays will encourage more Chinese buying. Soy oil remains extremely strong as the 20-year Chicago Board of Trade (CBOT) chart shows.
Canola Market
Canola usage:
In week 15, canola growers delivered 356,000 tonnes. The exports were said to be very good for the week at 295,000 tonnes and the domestic usage was said to be 214,000 tonnes. The visible stocks were put at 1.3 million MT. Crush margins remain excellent and in particular for soft seeds like canola where the oil content is higher. We expect if the railroads would provide more railcars then Canadian exports and the “basis” would be higher.
Elevator companies are enjoying record profits. Crushers are making more on the oil extracted from canola than they are paying for the seed. Growers delivered a little less seed in week 15 if they are “going to the bin” we may see the “basis” narrow. If exports continue at the current pace, and the current prices are maintained, our balance sheet gets quite tight.
Current market situation:
We see no reason for the crush margins to decrease, while there is still doubt about the size of the Argentine crop which keeps their crush capacity restricted. This will keep oil in demand and is very beneficial to canola with its higher oil percentage. Canola will maintain its premium to soybeans.
Market outlook:
We expect soybeans to rally further and canola will follow. Canola remains attractive in export markets based on its relatively high oil content. Crush margins remain high and we expect this to support Chinese buying, especially for soft oilseeds.
Action:
We see no reason to sell additional canola at current price levels. We suggest placing pricing orders for the next 15% sales at $21.50 per bushel.
Canola – Topics of Interest
Update on China’s rapeseed production and crush:
Based on the assessment and data of the USDA attaché in Beijing, China, rapeseed production in that country will increase by 7% and supply by 8% this crop year to 15.4 million MT and 19.1 million MT, respectively.
Importantly for Canada, consumption and crush are also expected to rise, leading to a resurgence in imports of both rapeseed (canola) seed and oil to 2.7 million MT and 1.9 million MT, respectively. This is despite the increase in domestic Chinese production.
