Canola Market Outlook: November 28, 2022
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
It was a short week in the United States due to their Thanksgiving holiday.
January soybeans closed up 21 cents per bushel and January canola up $4.90.
Washington, November 28: Private exporters reported sales of 110,000 MT of soybeans for delivery to unknown destinations during the 2022-2023 marketing year – most likely China.
Short-term market focus is on Argentina’s soybean plantings and Chinese demand which will be impacted from China’s Zero COVID policy.
The reduced demand from China, due to lockdown measures to curb COVID-19 infection rates, weighs on crude oil.
A key watch point for the oilseed market over the coming weeks is the planting campaign in Argentina, which is facing large delays due to the ongoing drought.
Price pressure on ICE canola futures continues as farmer selling continues more than demand, even while vegetable oil prices are stronger. Canola prices are indicative of Canadian railcar supply and not representative of global demand.
Problems are growing in China over COVID lockdowns with public protests against Xi and his government. This situation needs to be watched.
Oilseed Market Backdrop
Soybeans
Current market situation:
Soybeans start the week much higher. USDA Weekly Export Sales data had a 9-week low for soybean bookings with 690,000 tonnes sold during the week of November 17. Shipments were up by 20% on the week to 2.432 million tonnes for a season total of 16.95 million tonnes. This is 20% behind last year’s pace but is 30% of the November WASDE full-year forecast.
Argentina reported 29.4% of Argentine soybeans were planted as of November 23, which trailed last year by nearly 20%. Energy markets are lower which may mean less use of soy oil. Brazil's plantings are 76% complete, with dryness in the south and west of Brazil becoming more concerning. South America will remain the focus but Chinese demand will remain a concern while Chinese protests continue along with the rapidly closing US export window. The corn-soybean ratio has improved to 2.18 but in our view should be higher.
Market outlook:
The market will watch developments in South America. This crop is not made and the markets are more concerned with weather as the crop plantings are delayed. Soy oil remains at 65% of the crush value of soybeans. Crush margins continue to be at record levels.
Canola Market
Canola usage:
In week 16, growers delivered 487,000 tonnes, the exports were said to be 270,000 tonnes and the domestic usage 217,000 tonnes. So far through week 16, growers have delivered year-to-date 6.1 million tonnes versus the usage of 5.4 million tonnes. The delivery surplus through the first 16 weeks is about 700,000 tones, which has allowed the users to drop their buying levels for canola. The visible stocks are shown as 1.2 million tonnes. The crush and export seed margins for elevator companies remain excellent. Export demand from China, Mexico and Japan remains very good.
Current market situation:
While there remain concerns about South American crops, crush margins for soybeans will remain strong. Canola demand will remain excellent but – while producers continue to like prices and deliver in volume greater than demand – we don’t see the price improving against soybeans. Users can widen their “basis” discount to futures. More railcars would improve exports.
Market outlook:
We do not see too much that will change the outlook while doubt remains about the South American crop. We expect soybeans to rally further and canola will follow but at a lesser pace unless growers reduce deliveries. Crush margins are very good, which will continue to support China buying soybeans.
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.