Canola prices rebounded from a low hit at the end of November, partly on Statistics Canada’s crop size reduction, but future gains might be difficult as vegetable oil prices are under pressure.
Veg oils, led by soy oil, garnered strong support this year from the expansion of the renewable diesel sector, which is positioning itself to fill the targets in Canada and the United States for low-carbon, advanced biofuels.
Many billions of dollars are going to projects including new crushing plants, new renewable diesel plants and conversions of existing petrochemical refineries into renewable fuel refineries.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
But American advanced fuel proponents were disappointed by the Environmental Protection Agency’s draft rules announced Dec. 1 setting biofuel blending targets for 2023, 2024 and 2025.
The proposed targets would increase only marginally, moving from 2.76 billion gallons this year to 2.95 billion by 2025.
But the U.S. clean fuel industry estimates that it can already produce more than three billion gallons, and projects now underway and those announced would raise that to five billion to six billion by 2025.
The president of the American Soybean Association said the organization is deeply disappointed.
”This draft rule slams the brakes on progress being made in biofuels investment and growth. Instead of continuing to support available, low-emission plant-based fuel sources, EPA has changed course and seemingly is ignoring the major investments in and consumer demand for biomass-based diesel and other biofuels that exists right now,” he said.
By Dec. 9, the Chicago January soy oil contract lost 16 percent of its value relative to the price just before the EPA announcement.
The EPA action was not the only source of downward pressure. Crude oil’s price also influences vegetable oil and January West Texas Intermediate futures fell 13 percent in the Dec. 1-9 period.
There is industry and political push back against the EPA draft rule so they might yet be changed before a final ruling.
Also, market-driven demand for advanced fuel might be adequate, even with the lacklustre mandates, to advance production.
Last week, the head of Bunge, Greg Heckman, said his company would push ahead with its biofuel plans and forecasted the U.S. would produce five billion gallons of renewable diesel by 2024.
I should also note that the EPA has good news for canola. It made final a proposed rule allowing canola oil-derived renewable diesel to qualify as an advanced biofuel under the Renewable Fuel Standard (RFS) program.
Ultimately, the market might have overreacted to the EPA announcement. We’ll have to see if any companies delay or drop investments in new renewable diesel projects.
As for the effect on canola, so far falling soy oil did not tank canola futures.
They were supported by Statistics Canada, which dropped the canola crop size to 18.17 million tonnes from the earlier forecast of 19.1 million
Also, soybean futures were solid, even with falling soy oil. Improved weekly U.S. exports and rising soy meal futures supported the beans.
The U.S. Department of Agriculture monthly supply and demand report Dec. 9 provided no new perspective to the oilseed market.
The production and demand numbers for U.S. and global soybeans were mostly unchanged.
The USDA is cautious so it did not change the production outlook for Argentina, even though it is suffering drought. Farmers there are well behind the normal seeding pace for soybeans, leading to speculation about the final planted acreage number. Showers last week provided a little relief, but temperatures were also much higher than normal and there is speculation yield potential is already falling.
USDA also left its Brazil soybean forecast unchanged at a record 152 million, up from a drought impacted 127 million last year.
Seeding is all but complete in Brazil, but dry weather is a problem. Local forecaster CONAB last week trimmed its soy yield forecast by 0.3 bu. per acre to 52.6 bu. But it also raised the seeded area forecast by almost 400,000 acres from last month. Area is up 4.6 percent over last year.
CONAB expects almost 153.5 million tonnes of soybean production but warned yields could be trimmed further if the dry weather continues.
It also trimmed its forecast for the first corn crop because of the dry weather.
Meanwhile global wheat prices have fallen for several weeks, due mainly to success of agreements allowing Ukrainian and Russian exports, despite the war.
On the global supply front, Argentina’s drought caused the USDA to lower its wheat production number for that country by three million to 12.5 million tonnes. Canada’s all wheat crop is now at 33.82 million, down from 35 million last month.
But those reductions were partly offset by a 2.1 million tonne increase, to 36.6 million, to Australia’s wheat crop.
