Canola heads into holiday season on a downturn

Canola’s value compared to soybeans was fairly strong this fall, but its shine has dulled with recent events, particularly the decline in vegetable oil values.

On Nov. 1, the price of January canola was $11.76 per bushel, while Chicago January soybeans, converted into Canadian dollars were $12.69, meaning canola’s price was about 93 percent of soybeans.

By Dec. 18, canola prices had fallen faster than soybeans and were only about 90 percent of soybeans.

But that was still better than last year at this time, when canola was a little less than 88 percent of soybeans.

During the autumn, canola’s value was well supported by strong demand, expectations of tight year-end stocks, a surprise rally in palm oil values and lack of rain in South America.

January canola peaked at about $11.80 a bushel or $520 a tonne in early November, but then a series of issues started weighing it down.

The vegetable oil component of its value was hammered when the surprise rally in palm oil in October was wiped out by India’s decision to impose a duty on vegetable oil imports. India is the world’s largest vegetable oil importer. Palm oil makes up close to two-thirds of its veg oil imports.

Malaysian palm oil values fell 7.5 percent in November and 3.3 percent so far in December as export expectations had to be scaled back on the news from India. The decline also weighed down soy oil and canola oil.

From Nov. 1 to Dec. 18, soy oil fell about 4.7 percent, while canola seed fell 4.9 percent. Soybeans fell only 2.3 percent as the value of its meal component held on.

The Indian vegetable oil duty was the first shoe to drop. The next was the South American situation.

Brazil soybean seeding began under dry conditions but rain through November resolved the problem. Now it looks like it could have another bumper crop.

Argentina stayed dry until last week. But on the weekend, there was rain and more is expected this week, which should allow farmers to seed the remaining one-third of their soybeans.

The next negative factor was a domestic one.

On Dec. 6, Statistics Canada raised its estimate of the canola crop to a record 21.3 million tonnes, about a million more than the trade expected.

Even with robust exports and domestic crush, the new high production figure means year-end stocks will wind up larger than expected.

Agriculture Canada’s monthly supply and demand spreadsheet for December raised its forecast for year-end stocks to two million tonnes, compared to one million in the November forecast. Last year’s stocks were 1.35 million tonnes.

Combine all this with recent talk of a slower pace of export sales and you have the canola market headed into the Christmas holiday period on a down note.

Let’s hope the export slowdown is nothing beyond a seasonal thing linked to the holiday period here and the forthcoming lunar New Year in China in February.

Oilseeds generally will face downward pressure if rain keeps arriving in time for Argentina’s crop. But that is not a sure thing. The La Nina in the equatorial Pacific has a firmer grip this month and it has a history of reducing rainfall in Argentina. It is still expected to be weak but it is expected to linger into the March-April period.

Downward pressure could also come from the expected uptick of palm oil production, expected in the second quarter of 2018.

And an expected small increase in American soybean seeding in 2018 could also weigh on oilseeds.

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