This fall we’ve had the unusual situation of the Canadian dollar falling while the price of crude oil rises.
Since Sept. 1, nearby U.S. oil futures rose about $8.30 per barrel, trading Nov. 6 near US$56.83, the highest since July 2015.
Oil rose on OPEC’s success in limiting production and expectations that it will continue next year. Also, crude stocks fell in the U.S.
That would normally lift the loonie, but the market was focused instead on the declining chance of another interest rate hike because the Canadian economy is less robust than expected.
A weak loonie and strong oil tend to support canola prices, and they have, but remember that the loonie is still three cents stronger than last year at this point, so actually it is a negative factor for canola prices on a year over year comparison.
Still, canola values in October were $20 to $25 a tonne stronger than at the same time in the last three years.
That premium has disappeared as we move into mid-November and canola prices are about equal to last November. That seems reasonable if we look at supply and demand.
The trade believes total canola supply is the same or slightly more than last year.
And so far, total domestic and export demand is running slightly ahead of last year.
But other factors also affect canola prices, and as I look at them, I see conflicting positives and negatives.
The U.S. soybean crop is record large, but this week’s U.S. Department of Agriculture report was expected to show production was not quite as large as the forecast last month.
Brazil’s soybean seeding started slow because large areas were dry and farmers waited for moisture to help seeds germinate.
But now rain has fallen and the seeding pace, while slower than last year, is equal to the long-term average.
Production of competing palm oil was expected to increase in the second half of this year as it recovers from the last El Nino. That would have weighed down the vegetable oil market.
However, production recovery is slow, and analysts have lifted their price forecasts, now seeing palm oil in Malaysia rising another seven to 10 percent by January before falling through the first half of 2018.