Strong demand, weak loonie good for canola market

By the time you read this, Statistics Canada will have already released its final crop production forecast for the year.

Coverage of the report will be at

Polled before the report, analysts on average expected a record large canola crop of 18.8 million tonnes, even with all the harvest problems this year.

Based on that, and with a carry-in of about two million tonnes, the total canola supply is in the neighbourhood of 20.8 million tonnes, similar to the total supply in 2015-16.

However, even with a big supply, canola prices are among the best in the last three years because of strong demand, a weak loonie and support from soybeans.

The Statistics Canada report was difficult to produce this year because a lot of crop was still in the fields when the surveys were done in late October and early November.

As well, the overall production numbers don’t account for crop quality, which suffered because of the snow and rain of October and excess moisture during the growing season.

Canola quality holds up better in wet weather than cereals, so there is a good chance that most of the canola harvested will be suitable for export and domestic crushing.

I’ve written before about the record pace of the domestic crush. That continues, with the total processed to Nov. 30 up about 15 percent over last year at the same point.

Canola exports early in the 2016-17 crop year were slow because of the dispute with China over dockage.

At the end of October, canola exports were 465,800 tonnes behind the previous year.

However, exporters posted a strong November, moving almost a million tonnes and narrowing the overall gap to just 183,000 tonnes shy of last year’s total.

Because the domestic crush is so strong and exports are catching up, the total canola use to the end of November is running a little ahead of last year at the same time.

Crush and exports combined this year are 6.097 million tonnes compared to 5.88 million at the same point last year.

Barring surprise developments, the year-end canola carryout should not be burdensome.

So future canola price direction could be mostly dictated by soybean and palm oil prices and currency.

U.S. soybean prices are supported by exceptionally strong export demand. South American soybean growing conditions are somewhat mixed.

Seeding in Brazil is heading toward the home stretch. There is generally good moisture in central and eastern growing areas but it has been dry in the south, especially Mato Grosso do Sul where early seeded crops are under stress, according to Soybean and Corn Advisor.

However, the forecast is for increased showers that might improve the situation.

Seeding in Argentina is a little behind the normal pace because of problems in areas outside the core growing region. However, seeding in the core is progressing well, and there is good moisture.

Growers are looking for warmer weather heading into summer after a cool seeding season.

Palm oil prices are expected to be well supported by smaller than expected production for the next month or two, but production is then expected to recover from the El Nino of earlier this year.

The Canadian dollar is weighed down by expectations of steady, low interest rates here but a move toward higher rates in the United States.

OPEC’s move to cut crude production lifted oil above US$50 a barrel and helped the loonie climb above 75 cents for the first time since mid-October. However, analysts expect there is little room for additional gains, and a move back to 74 cents or less is possible in the first half of next year.

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