Canola Market Outlook: November 6, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans: Soybeans were sharply higher last week with soybeans making a 7-week high, as weather conditions in Brazil were not considered good for planting.
China bought US February soybeans at a big premium to Brazilian soybeans as weather concerns increased for the Brazilian crop.
We think soybeans are getting overpriced compared to corn. However, if rain continues, specs will take soybeans higher.
Canola: Crush margins in Canada remain very profitable, but we will need to see a big increase in weekly exports if we are to achieve our export forecast.
However, if we incur problems with South American crushing capacity, this could be critical and will help canola prices.
While the market is assessing problems in South America, we would hold additional canola sales for now.
Oilseed Market Backdrop
Soybeans
Current market situation
Soybeans were sharply higher last week with soybeans making a 7-week high, as weather conditions in Brazil were not considered good for planting. Non-Commercials were very big buyers in soybeans and notably and also in soybean meal.
(Weekly CFTC data showed managed money funds were back to 23k contracts net long as of Oct. 31 after closing 9,000 shorts and adding 6,400 new longs. Commercial soybean traders cut a huge 136,000 contracts (17% of OI) as options expired and the Nov contract approached deliveries. The weekly report also showed major new buying from managed money in meal, 17,000 new longs (+17% of existing CT’s) for the week. In soybean oil, the spec funds were 4,495 contracts net long, a 7k drop for the week via major net new selling – 9,800 new shorts (+18% of existing CT’s)).
Cash meal demand was also strong as capacity was seen as getting tight. Soybeans are another 17 cents/bu stronger to begin the new week.
China bought US February soybeans at a big premium to Brazilian soybeans as weather concerns increased for the Brazilian crop. The market will concentrate on Brazilian weather over the next while.
We also expect the next USDA-WASDE report on Wednesday. Pre-WASDE estimates have traders looking for a 2.3 mln bu soybean production cut and a 2.5 mln bu looser carryout. Many expect USDA to boost the Argentine soybean crop by 200k mt to 48.2 mln mt while reducing the Brazilian crop by 600k mt to 162.5 mln mt.
Market outlook
In our view, soybeans are getting overpriced compared to corn. However, if rain continues, specs will take soybeans higher. Watch the forecasts for future direction. Argentina will likely run out of soybeans to crush by mid-November.
Canola Market
Canola usage
The Canadian Grain Commission reported that during week 13 of the crop year, growers delivered 272 thousand MT of canola into primary elevators, exports were at 276 thousand MT, while the domestic disappearance showed 230 thousand MT.
YTD canola disappearance into week 13 of the crop year amounts to 4.2 million MT compared to 4 million MT last year and is up 7% on last year.
Visible stocks fell to 1.04 million MT, with 645 thousand MT in primary elevators, 169 thousand MT in process elevators, 98 thousand MT in Vancouver/ Prince Rupert, and 142 thousand MT in eastern ports.
Current market situation
The canola market was benefitting from the lift in the soybean markets that was induced by the weather concerns in Brazil. If we incur problems with South American crushing capacity, this could be critical and will help canola prices. (Heavy rain and flooding in the south of Brazil will require re-seeding, while heat and dryness in the center-north could further delay plantings there.) Matif Feb rapeseed closed at a 5-week high, and Asian markets were trading last week with Malaysian palm oil posting its best gains in three weeks on a 7-9% month-on-month increase in Oct exports.
The canola market is now underpriced compared to current soybean futures. Crush margins in Canada remain very profitable, but we will need to see a big increase in weekly exports if we are to achieve our export forecast. Prorating YTD exports only adds to 6.3 mln mt for the year, which would fall short our expectation by a big 1.7 mln mt. There are only 98k mt of canola sitting in Vancouver terminals right now. If weekly exports do not improve, we will need to reduce our export forecast.
YTD crush numbers prorate to 10.6 mln mt, 600k mt higher than expected, but this still would not be enough to compensate for a small export program.
Market outlook
US soybean stocks will be determined by Brazilian weather and by Chinese demand, and this will influence canola values as well.
Action
While the market is assessing problems in South America, we would hold additional canola sales for now.
Canola – Topics of Interest
EU Rapeseed Imports:
EU rapeseed imports in the first quarter of their marketing year were lower than in the year prior.
Rapeseed imports to EU-27 states in the first quarter amounted to 1.23 mln mt, down almost 38% from last year. The Ukraine remains the most important country of origin, with exports of 683,000 mt (1 July to 15 October). This represents a 55% share in imports. However, imports from the Ukraine are expected to fall from last year’s 1.3 mln mt due to Russia's withdrawal from the grain export agreement. Since then, Ukrainian commodities have to be exported via alternative routes such as road, rail or via the Danube River. This is resulting in higher freight charges. The import ban imposed by some EU countries prevents also makes bigger shipments more difficult.
The second most important supplier of rapeseed to the EU was Australia with 283,00 mt for the peirod, although Australian exports dropped by more than half from last year’s. Australia covered 23% of EU rapeseed imports. Moldova took third place with 181,716 mt. Most of this rapeseed likely came from Ukraine, since Moldova's own rapeseed crop in 2023 only amounted to only 65,000 mt.
There were no imports of Canadian canola to the EU during the period
