Rising oilseed market could spark modest canola rally

There are several factors that should be lifting canola prices but values so far are stubbornly flat.

Exports are fairly good. Even with China’s restrictions on imports of Canadian canola, total canola exports in the first 12 weeks of the crop year are slightly ahead of last season, which was before China took issue with our canola.

The total of 2.02 million tonnes exported is only a little down from the average of the previous five years at 2.1 million tonnes. 

Production could prove smaller than current forecasts. Although farmers are persevering through a terrible harvest season, likely some canola fields will have to be abandoned, reducing the total national production by a small amount.

Other parts of the vegetable oil complex are rallying. In recent weeks, soybean and soy oil futures prices have risen a little, lifted by the delayed United States harvest and a cut in the U.S. Department of Agriculture October forecast for year-end soybean stocks.

Also, palm oil prices are rising on disappointing production because of dry weather and smoke haze from fires. Producing countries’ plans to increase the palm content in biodiesel are also lifting the market.

Dorab Mistry, a prominent palm market analyst last week raised his forecast for Malaysian palm oil to 2,700 ringgit per tonne, or almost US$650, by March 2020 from a previous forecast of $600. After a sharp rally in the last week of October, the price is already close to $600.

All these factors support oilseed prices but canola values are in the doldrums.

A weak rally in early October ran out of steam and canola at the beginning of November was where it was at the beginning of September.

Meanwhile soybeans and soy oil are both up about six percent since early September.

Compared to this time last year, soybeans are up about four percent, soy oil is about flat and canola is down about 10 percent. And the exchange rate of the dollar is not to blame. The loonie is worth about US76 cents, the same as last year at this time.

Canola has become less expensive relative to soybeans and that is helping to stimulate demand that is filling in for the reduction in Chinese buying.

Good profit margins in the domestic canola crushing industry are causing them to boost production. In the first 12 weeks of the crop year, canola domestic disappearance stood at 2.46 million tonnes, up from 1.92 million last year and 2.07 million two years ago.

The relative cheapness of canola is also probably behind the good pace of exports to the United Arab Emirates. It took 168,500 tonnes in the first two months of the crop year, up from just 18,400 tonnes in the same period last year. A crushing plant in UAE buys canola when it can make a profit selling the oil and meal internationally, usually to the European biofuel market or to China.

I should also note that although China has restricted imports of Canadian canola, it has not completely blocked them. In the first two months of the crop year it imported 182,600 tonnes, a significant sum even though it is less than the 617,400 tonnes it took in the same period last year. 

With data from only 12 weeks, or 23 percent of the crop year, it is impossible to determine whether the good pace of exports and domestic use will continue. Also, we won’t have the final official word on this year’s production until the Statistics Canada Production of Principal Field Crops report is released Dec. 6.

But it is heartening to see that at least in the opening weeks of this crop year, several signs point to the possibility that the canola carryout might not grow to 4.7 million tonnes that Agriculture Canada forecasts. That would be a stocks-to-use ratio of 25 percent, up from 22 percent at the end of 2018-19 and a tight 12.3 percent at the end of 2017-18.

It is also heartening that the global oilseed market environment is starting to look better.

All this might yet rouse canola from its flat trajectory, leading to stronger prices ahead.

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