Analyst downgrades canola carryout estimate

Agriculture Canada expects ending stocks of 3.5 million tonnes, but a markets observer says it will be only one million

Canola carryout is going to be plenty tight despite a downward correction in how much seed Canadian crushers have been consuming, says an industry analyst.

Marlene Boersch, managing partner with Mercantile Consulting Venture, forecasts slightly more than one million tonnes of ending stocks in 2019-20.

That is a fraction of the 3.5 million tonnes that Agriculture Canada is forecasting.

Boersch is using different carry-in, production, export and domestic crush numbers than Agriculture Canada, resulting in a far tighter ending supply of the crop.

Her total supply of canola is 21.3 million tonnes, which is 1.5 million tonnes smaller than Agriculture Canada’s forecast.

Boersch is more bullish on exports. She believes 9.55 million tonnes will be shipped compared to Agriculture Canada’s 9.1 million tonnes.

And that is using a conservative projection of one million tonnes exported to China compared to three million tonnes last year.

Her export optimism stems from a forecast of a 1.6 million tonne program to the European Union, up from 642,000 tonnes last year.

The United Arab Emirates is the other big surprise. It is on pace to buy one million tonnes, up from 457,000 tonnes last year.

The big question is how much canola is going to be crushed in Canada. Boersch believes it will be close to 11 million tonnes, which is 750,000 tonnes more than Agriculture Canada is forecasting.

But domestic crush estimates have been muddied by a mistake in the Canadian Grain Commission’s weekly statistics report.

The CGC made big adjustments to both its canola export and canola crush numbers in its Week 23 report.

The report indicated crush was 678,500 tonnes ahead of the previous year’s pace as of Week 23, down from slightly over one million tonnes ahead as of Week 22. That is a 356,600 tonne adjustment.

That adjustment was mostly offset by an increase in the export number. Exports were listed as 386,500 tonnes below the previous year’s pace in Week 23 versus 640,600 tonnes behind in Week 22. That is a 254,100 tonne correction.

The bottom line is the increase in crush still outweighs the decline in exports by nearly 300,000 tonnes, supporting Boersch’s contention that things are getting tighter.

Another reason for her optimism is that China’s vegetable oil stocks have been shrinking dramatically in recent years, particularly its rapeseed oil supplies.

At some point China is going to need to bolster its supplies. Importing canola seed is the obvious solution due to its high oil content.

The entire vegetable oil complex has been surging of late. Palm oil prices in Asia have increased 35 percent since October. European rapeseed prices are up 13 percent over that same period.

Boersch thinks growers should be selling November delivery canola at new-crop prices of $10.75 per bushel or better.

“You might want to hedge some of that for next year,” she said.

Canola is the “top of the heap” for estimated returns per acre in 2020-21, which could lead to as much as a 10 percent increase in acreage this spring.

Boersch’s flax outlook was far less encouraging due to a lacklustre export program.

She was originally going to title her export slide “catastrophic” but settled on “amazingly small” instead.

It appears that exporters will ship out 315,000 tonnes of the crop compared to 467,000 tonnes last year and 516,000 tonnes the year before.

The biggest setback is in China, where year-to-date sales are down about 75,000 tonnes. Canada is facing stiff competition from Kazakhstan in that market.

Kazakhstan has become the world’s largest flax producer. It has a significant freight advantage into China due to China’s US$575 billion Belt and Road Initiative.

“Unless we can see some recapturing of the Chinese market, I think the flax prices next year will drop back to some degree,” said Boersch.

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