Canola Market Outlook: September 26, 2022
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans – The USDA's weekly US export sales report – at 446 thousand MT – came in well below expectations of 500 thousand to 1 million MT.
Soybean rallies will continue to be laboured with a full week remaining for Argentine farmers to dump their soybeans and take more Chinese demand away from the US.
However, we think soybeans are undervalued and the ratio to corn will be significantly higher after harvest.
Canola – Year-to-date canola disappearance into week 7 of the crop year amounted to 1.3 million MT compared to 1.5 million MT last year.
Provincial canola yield estimates are coming in lower than expected.
We would hold additional sales until the soybean ratio improves, which we think will be after harvest.
Oilseed Market Backdrop
Soybeans
Current market situation:
Fresh news in the oilseeds markets was limited to the weekly US export sales report which – at 446,000 MT – came in well below expectations of 500,000 to 1 million MT. While cumulative US exports are ahead of last year’s, the continued lack of Chinese buying interest does not augur well for the future. Argentina is filling the ‘usual’ US harvest slots of October through November, and January 2023 could see the return of Brazilian soybeans to the market (given the timely plantings). Meanwhile, the US weather outlook still promises good harvest progress, with selling pressure potentially accelerating next week.
Argentine farmers reportedly sold another 700 thousand MT of soybeans, taking total sales since the start of the 'soy Peso' to an estimated 11 million MT. This implies 7 million MT of sales since September 15, which was the last official data update. A 50:50 split of the last two week’s sales would take the crusher share to around 31 million MT and exporters to 9 million MT, which conflicts with the USDA's current Argentine soybean exports of just 2.25 million MT (and an annual crush of 40 million MT).
Soybean rallies will continue to be laboured with a full week remaining for Argentine farmers to dump their soybeans and take more Chinese demand away from the US.
Market outlook:
In our view, soybeans are undervalued and the ratio to corn will be significantly higher after harvest. However, a rapid US harvest and generally favourable Brazilian weather, plus more volume selling in Argentina, will keep prices under pressure for now.
We do not see a reason for corn to drop for now, so we see US soybeans undervalued.
Canola Market
Canola usage: The Canadian Grain Commission reported that during week 7 of the crop year, growers delivered 450 thousand MT of canola into primary elevators, exports were a very small 12,300 MT, while the domestic disappearance was at 180 thousand MT.
Year-to-date canola disappearance into week 7 of the crop year amounted to 1.3 million MT compared to 1.5 million MT last year.
Visible stocks increased slightly to 886 thousand MT, with 116 thousand MT in process elevators, 65 thousand MT in Vancouver/ Prince Rupert and 29 thousand MT in eastern ports.
Current market situation:
There is more talk about a shortage in the supply of railcars and containers, which is limiting exports. Meanwhile, grower deliveries have picked up, which tells us we are now getting well into the harvest of new crop. In fact, Saskatchewan Ag reports that 52% of Saskatchewan canola was harvested as of September 19. Alberta Ag shows 54% harvested, while Manitoba Ag indicates that only 24% of Manitoba canola was harvested.
Yield assessments vary greatly, with the average Saskatchewan yield shown at 34 bu/acre, Alberta yields at 38.8 bu/acre, and Manitoba yields at 35-50 bu/acre. These provincial numbers, if correct, would imply a small crop of only ~17.6 million MT. We think this is likely too low, but improved bids by elevator companies show that they are concerned. AAFC assessed canola production at a much higher 19.1 million MT as of last Friday.
Crusher margins are simply excellent, and we assume companies that have crush plants are holding back the export of seed to earn these margins in their crush operations.
Market outlook:
Canola is well priced against soybeans to destinations like Japan, Mexico, the US and China that primarily crush for oil. There appears to be plenty of seed in primary elevators (676 thousand MT) to provide seed for exports, but very little seed in export position (65 thousand MT on the West Coast and 29 thousand MT in eastern ports).
We have left our balance sheet unchanged for the time being but may have to adjust our yields down. Also, if exports for some reason do not pick up, this will have an impact on carry-in.
Action:
We would hold additional sales until the soybean ratio improves, which we think will be after harvest.
Canola – Topics of Interest
AAFC September Canola Balance Sheet:
Agriculture and Agri-Food Canada’s (AAFC) September numbers were published last Friday. AAFC changed virtually every number in both their 2021/22 and 2022/23 canola balance sheets. Starting with the 2021/22 crop year, canola production and supply was increased to 13.8 and 15.6 million MT respectively (12.6 and 14.5 million MT in the August report), total usage increased to 9.5 million MT (8.5 million MT previously) and ending stocks increased to 875 thousand MT (850 thousand MT previously).
Moving to the new 2022/23 crop year, production was increased to 19.1 million MT (18.4 million MT previously). This is in stark contrast to the provincial agencies lowering yields over the past two weeks. Supply was lifted to 20.1 million MT (19.3 million MT last month), and total usage improved to 10.3 million MT (from 9.7 million MT last month). 2022/23 ending stocks are shown at 500 thousand MT, up from only 450 thousand MT last month.
If usage (crush and exports) comes in as robust as projected, the balance sheet will indeed be very tight again in the new crop year.
