Analysts are becoming increasingly bullish about canola for a variety of reasons.
“We think the canola market has every reason to be volatile,” said Dan Basse, president of AgResource Company.
Looming tightness in canola supplies due to dry conditions in Canada and Australia are what is behind his optimism.
He is forecasting 18.2 million tonnes of Canadian production, which is below Agriculture Canada’s estimate of 18.75 million tonnes.
The Australian Oilseed Federation is forecasting a 3.1 million tonne harvest in that country, down from 4.2 million tonnes last year.
Basse said that is going to result in a tight supply to meet what is expected to be strong demand for the crop.
The U.S. Department of Commerce is contemplating slapping countervailing and antidumping duties on soybean biodiesel from Argentina and palm oil biodiesel from Indonesia.
If that happens, there will be more demand for U.S. biodiesel and the soybean and canola oil used to make it.
“We were hoping that there was going to be more Canadian canola, but that doesn’t appear to be the case,” said Basse.
He is also anticipating a “more aggressive appetite” for canola from China as the government reduces its rape oil auctions.
That is why Basse is forecasting a possible winter high for nearby canola futures of $575 to $600 per tonne, up from $507 at the end of last week. He doesn’t see much downside risk below $430 per tonne.
Oil World says an “explosive situation” could be developing in the canola market due to dwindling production prospects in Canada and Australia despite the recent upward revision in European rapeseed production.
Chief executive officer Thomas Mielke recently told a group of Australian grain growers that there is little risk of canola dropping below current price levels due to low palm oil stocks.
He said the palm industry is still recovering from the El Nino of 2015-16, according to a report in The Weekly Times, an Australian rural news service.
That conflicts with a recent Reuters story stating that Malaysia’s palm oil inventories reached their highest level in over a year in July.
The U.S. Department of Agriculture is forecasting 2.5 million tonnes of ending stocks in Malaysia in 2017, up 54 percent from the previous year.
It estimates Indonesia’s stocks will be 2.8 million tonnes, a 46 percent increase over 2016.