Recent strength in the vegetable oil market helped November canola futures almost reach $900 per tonne last week, the highest level since early summer.
Soybeans and soymeal futures showed little spark in recent weeks as the American harvest progress keeps a lid on the market, but soy oil has shown life, giving a welcome boost to canola.
In June, crop markets collapsed from spring highs when traders began to fix their gaze on central banks’ inflation fight and the worry of a hard landing that would push economies into recession.
Read Also
Government, industry seek canola tariff resolution
Governments and industry continue to discuss how best to deal with Chinese tariffs on Canadian agricultural products, particularly canola.
Since then, oilseeds have traded in a range with the top side resistance in canola at around $895 per tonne.
The November, contract posted a low Sept. 8 and as this column was written on Oct. 21 it had risen from the low by almost 17 percent to $898.90.
The January contract, which is now the most traded, had not climbed as much, but was still up more than 13 percent from the low. Soy oil had also climbed about 13 percent in the same period.
By the time this column is read, it might be clear whether canola has broken above into a new, higher trading range.
Vegetable oils seem to have strength independent from crude oil, which drifted a little lower last week.
Plant oil received help from palm oil. It rallied last week as producers in Indonesia expressed worries that current excessive rain and flooding might continue in coming months as La Nina continues to affect weather trends. Wet weather makes harvesting and transport of palm difficult.
Indonesia’s weather agency last week noted that La Nina would be joined by a negative Indian Ocean Dipole, raising the prospect of excessive rain and flooding in November. The dipole has also added to the excess rain and flooding in eastern Australia.
This runs counter to the general narrative for palm oil. Most forecasts expect increased production and exports in the coming months, with top producer Indonesia encouraging exports after limiting them last crop year and number two producer Malaysia recovering from labour shortages.
Time will tell if the weather is as bad as feared.
Another factor supporting vegetable oil prices is the war in Ukraine, which is the top producer of sunflower oil. The war has disrupted movement of that oil.
But all these factors are not as important as the progress of the coming South American soybean crop.
Reporter Sean Pratt covered analysts’ thoughts about the southern hemisphere soy crop recently, but let’s dive into the forecasts more deeply.
The United States Department of Agriculture sees a large, 10 percent increase in global soybean production in 2022-23.
The rosy forecast rests on big increases in South America, where soybean seeding has just begun.
It sees Brazil’s crop at a record 152 million tonnes, up 25 million from last year’s 127 million.
Argentina is pegged at 51 million, up from 44 million last year.
Paraguay sees 10 million tonnes, up from 4.2 million.
Last year, dry weather in Argentina, Paraguay and southern Brazil, was the limiting factor.
Brazil’s Conab crop forecaster says seeded area is expected to climb 3.4 percent while yields will rise 17.4 percent.
This year, the southernmost province Rio Grande do Sul, normally home to 14 percent of soybean production, remains very dry.
But otherwise, in states further north moisture is mostly adequate to excessive, with heavy rain in Parana state, home to 17 percent of normal production, forcing some fields to be reseeded.
In the areas with too much rain, seeding was delayed but overall, as of Oct. 18, soybean seeding was 24 percent complete, compared to 22 percent last year and the 15 percent long-term average.
Paraguay has also had too much rain, which is delaying seeding.
Soy seeding in Argentina is just beginning. Soils are exceptionally dry.
The drought gripping the agricultural area ravaged the winter wheat crop. Local analysts now peg it at only 15.2 million tonnes, down from the previous week’s forecast of 16.5 million and down from last year’s 22.4 million.
Judging by all this, I think it’s highly unlikely that Argentina will reach 51 million tonnes of soybeans. Long-range forecast models show a strong likelihood of Argentina and Brazil’s Rio Grande do Sul remaining dry through the soybean growing season.
As for the rest of Brazil, the long-range models show northern growing states having normal to above normal moisture in coming months.
In the middle, Parana and Mato Grosso do Sul, models show the current excessive rain could turn dry in November and December, changing back to normal in January and February.
Given that mixed forecast it is hard to say whether 152 million tonnes is within reach. Time will tell.
The models show Paraguay enjoying average moisture, so a 10 million tonne crop seems attainable.
