Canola values resilient in face of drop in oil and markets

The COVID-19 virus worldwide and the rail blockades at home have depressed grain futures prices but canola prices have fared better than most other parts of the vegetable oil complex and crude oil values.

Its relative strength might be explained by the fact that since most canola shipments have been barred from China anyway, the havoc that the virus has caused on the Chinese economy has had little effect on the export prospects for the oilseed.

From Jan. 1 to March 6 when this column was written, the May canola contract had fallen six percent.

Because of the high oil content, canola futures are usually closely connected to soybean oil futures, but happily they currently are not. May soybean oil in Chicago was down 19 percent since Jan. 1.

Palm oil futures had also fallen about 19 percent.

May soybeans had fallen eight percent. Corn was down 5.5 percent and hard spring wheat was down 7.6 percent.

But soybean meal was down only about 1.4 percent. It had been down as much as 5.5 percent at the low set Feb. 24 but it then rallied on news that Argentina’s government was hiking back up its export tax on soybeans and soy products to 33 percent from 30. Argentina is the world’s largest exporter of soy meal.

The move was part of President Alberto Fernandez’s plan to make the country solvent after announcing it will have to revamp about $100 billion in what it calls unsustainable debt.

The government of the previous President Mauricio Macri had lowered export taxes on soybeans and soy products but the country is now suffering the worst recession in two decades and the government needs additional revenue.

Argentine farmers were planning a four-day strike for this week when they would not sell grain.

The 19 percent decline in palm oil, which also helped to depress soy oil, was attributed to reduced demand from China, the epicentre of the virus-caused disease, and also increased duties imposed by India. Its government took exception to statements made by former Malaysian Prime Minister Mahathir Mohamad regarding India’s control of Kashmir.

But in an unrelated power struggle, Mahathir lost his position as prime minister in late February.

Senior lawmakers expected to be in the new cabinet quickly reached out to India to try to restore good relations.

But Reuters quoted Indian traders saying it would take more than desire for detente for trade to resume.

The soy oil market has not been helped by rising stocks of the commodity in China.

Reuters reports that stocks there are 30 percent above the norm for this time of year. Consumption stalled since the COVID-19 virus epidemic caused millions of people to stayed home instead of eating out.

And China is still largely avoiding American soybeans, buying instead the newly harvested crop coming from Brazil.

Vegetable oils are also suffering from spinoff pressure from the collapse in crude oil values, which are down 31 percent since Jan. 1. Crude was down sharply as the travel restrictions associated with the fight against the virus hurt demand and then on March 6 Saudi Arabia said it would abandon production curbs designed to prop up oil prices. Instead the kingdom has decided to expand production and slash prices to drive higher cost competitors in the Russia, the United States and elsewhere out of business.

Turning to Canadian canola, exports continue to run behind last year, as expected, but still should be able to attain Agriculture Canada’s forecast of 9.1 million tonnes.

The grain export system has faced many challenges this winter, from the one-week Canadian National Railway strike late last year, to the heavy rain in January in Vancouver that disrupted port loading, to the six-day Jan. 30-Feb. 5 outage of CN’s main southern line west of Kamloops in British Columbia due to heavy rain washing out the track, to the track blockades in support of the Wet’suwet’en hereditary chiefs.

Industry officials note the large number of vessels waiting to be loaded at the West Coast.

For week 30 of the crop year, there were 41 ships in Vancouver and 10 at Prince Rupert. Last year at the same time there were about 27 at Vancouver and five at Prince Rupert.

It should be noted that the number of ships waiting at Vancouver has been substantially higher (10 or more) than last year since the start of January.

From that, I’d argue that although the rail blockades contributed to the problem and were a form of protest that should not be allowed to happen, they were not the only reason for the vessel backup at the West Coast.

Farmers are rightly disappointed, and financially penalized, whenever the export pipeline is functioning below its potential.

But it is worth noting that, at least in canola, export and domestic demand targets can still be met.

The Canadian Grain Commission report for week 30 shows 5.29 million tonnes of canola have been exported so far in the crop year. That works out to an average of 176,290 tonnes a week. If that average can be maintained for the 22 weeks to the end of the crop year that would bring the total to 9.167 million tonnes.

So we are still on track to meet Agriculture Canada’s export forecast of 9.1 million.

If we look at the CGC’s domestic disappearance number for week 30 and do the math for the same extrapolation to the end of the crop year, we see that we are easily on track to meet the forecast for total domestic use of 10.28 million tonnes.

So Agriculture Canada’s forecast of 3.2 million tonnes of carry out is also still achievable.

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