A rally in palm oil helped lift canola futures last week, but there isn’t much hope for a sustained oilseed price rally for the rest of this calendar year.
We’ve reported in recent months how canola prices have been kept in check by a record large Canadian crop and ample world supplies of vegetable oil.
On the other hand, oilseed meal supply was tight.
It meant that soybeans, which are about 80 percent meal and 20 percent oil, had more price support than canola, which is 60 percent meal and 40 percent oil.
The palm crop, which is grown mostly in Indonesia and Malaysia, is a major contributor to the global vegetable oil surplus.
This is normally the highest producing period of the year, and analysts expected palm stocks would rise.
Malaysian September statistics showed stocks did rise, but not as much as expected, and demand was better than expected. So palm prices rallied, helping lift soybean oil futures, which in turn helped lift canola futures, even as the massive harvest rolled in.
But the rally ended Oct. 11 and we could be in for more price pressure this month as the United States hits the height of its harvest. Prices often fall as harvest reaches the 50 percent point, and that is about where the Americans were this weekend.
Conflicting forces in the American harvest are:
- Anecdotal reports of better than expected yields, which put pressure on prices.
- Signs that farmers are not rushing to sell, which supports the price.
After strong grain prices the past few years, farmers might have the financial wherewithal to hold out in the hope of getting stronger prices.
On the other hand, prices for the November and January soybean contract months are almost the same, so the market is not paying farmers to store the crop and is signalling to sell now. In canola futures, deferred contracts are higher than the nearby, showing there is a payment for storage.
Also, canola basis levels have widened as the western Canadian elevator network plugs up with wheat and canola.
There likely won’t be much more support from palm beyond this surprising monthly report. Palm production is usually more than ample to meet demand.
High demand festival seasons in China and India are now over, and India’s demand will likely weaken because it is expected to produce record large domestic crops of soybeans and peanuts.
Record large soybean acreages are expected in South America, and growing conditions might prove favourable there because ocean temperatures in the Pacific are neutral, meaning no El Nino or La Nina.
Taken together, all these factors show there is a lot going against a significant sustained oilseed price rally.
Marketings slow and prices usually edge up once harvest is complete and farmers have sold enough to meet immediate cash flow needs.
However, a significant rally would require a big surprise in demand.