Canola Market Outlook: October 23, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans Soybeans and meal were higher last week, while the oil share suffered badly, collapsing to around 38%.
Rallying meal spreads point to technical near-term shortages in cash markets.
China did buy more US soybeans last week, and we expect more will be registered in the coming week.
Canola: We had good exports of canola in week 11, and with 222k mt sitting in Vancouver terminals also expect to see good exports in week 12.
Crush margins remain excellent, and crushers remain the best buyers.
But with oil values under pressure, we remain bearish on November canola futures.
With markets very uncertain, we would want to be up to 80% sold canola at ~$16.00/bu.
Oilseed Market Backdrop
Soybeans
Current market situation
Soybeans and meal were higher last week, while the oil share suffered badly, collapsing to around 38%. Rallying meal spreads point to technical near-term shortages in cash markets. US soybean sales were as expected and left the season total of 767 mln bu down 31% on last year against the USDA’s projected 12% decline.
Soybean plantings in N Brazil are progressing only slowly due to heat and dryness, and they are slow in S Brazil due to excess rain. Argentina was quiet ahead of Sunday’s elections.
Soybean imports by China during September totalled 7.15 mln mt, but US exports to China in September are down from 1.15 mln mt last year to just 133k mt this year. However, China did buy more US soybeans last week (947k mt including switches from unknown destinations), and we expect more will be registered in the coming week.
Market outlook
In the short term, we expect users to buy more meal, which could strengthen soybeans. Oil demand is low, and the oil share of the crush reduced further.
Also, while the markets seem so uncertain, we decided to take our healthy profits on the long Dec corn/ short Nov soybean spread. We think there should be more in the spread, but with so much going on around the world we felt taking the profit the most conservative position. We can always put it on again.
Canola Market
Canola usage
The Canadian Grain Commission reported that during week 11 of the crop year, growers delivered 460 thousand MT of canola into primary elevators, exports were a healthy 215 thousand MT, while the domestic disappearance showed a record 322 thousand MT. (We think the week 11 number also represents a catch up on the low estimates in previous weeks).
YTD canola disappearance into week 11 of the crop year amounts to 3.3 million MT compared to 3.1 million MT last year and is up 7% on last year.
Visible stocks were at 1.28 million MT, with 734 thousand MT in primary elevators, 198 thousand MT in process elevators, 222 thousand MT in Vancouver/ Prince Rupert, and 124 thousand MT in eastern ports.
Current market situation
First, regarding 2023 production numbers, we received the final SK Ag report with adjusted ‘final’ yield numbers. SK Ag actually increased their average provincial canola yield from 32 bu/acre posted on Oct. 2nd to a 33.2 bu/a acre average on Oct. 16th. - Mercantile has been using a 33 bu/acre avg for SK and an overall average of 35 bu/ac, for a total production of 17.8 mln mt. This compares to a StatsCan production estimate of 17.4 mln mt.
We had good exports of canola in week 11, and with 222k mt sitting in Vancouver terminals also expect to see good exports in week 12.
November Matif rapeseed in Europe collapsed ahead of expiry, with the Nov-Jan pushing to a €38/mt (C$55.36/mt) carry. Low water levels on the river Rhine, low demand and a dysfunctional delivery mechanism did not help. ICE canola also fell to 4-month lows, with the trade here expecting a larger crop than currently portrayed in official statistics.
Carrying November rapeseed futures is proving to be an expensive, but not very funny story for longs. In our view, with the lower value of oil, we still think canola futures are too expensive. However, in the short term, it should be kept in mind that crush margins are excellent.
We increased both exports and production in our balance sheet for canola.
Harvest in Australia is just beginning, but like the grains, crop estimates are rising, and some analysts are pushing estimates towards 6 mln mt compared to the USDA’s 5.1 mln mt estimate.
Market outlook
For oilseeds, the collapse in soybean oil stands out as much as the rise in meal, and soybeans seem content to trade in a range. South American weather and where China sources its soybeans, stand out as the key fundamental drivers, but we expect meal and oil to stay volatile.
We remain bearish on November canola futures.
Action
We would consider getting up to 80% sold canola at ~$16.00/bu.
Canola – Topics of Interest
US Canola crop
According to the latest USDA crop estimates, the US canola production for 2023 reached a record high 1.818 million MT (4.01 billion pounds), up 5% from the 2022 revised production of 1.733 million MT (3.82 billion pounds).
The total US seeded acreage reached a record high 2.35 million acres, up 3% from the June estimate and up 6% from last year's area.
The October yield forecast at 1,741 pounds per acre is 21 pounds below last year’s yield. The average yield forecast in both Montana and Washington are down 100 pounds per acre from last year's average yield in those States.
