Oilseed, oil and meal prices have rallied to six-year highs and could be heading higher due to problems in South America
Canola’s bull run isn’t over, says a leading oilseed analyst.
Thomas Mielke, editor of Oil World, anticipates soy, palm and sunflower oil prices will appreciate further in 2020-21.
“This should spill over to canola and provide attractive selling opportunities for canola farmers,” he told delegates attending Canola Week.
Mielke also forecasts a tightening in Canadian canola stocks in 2020-21.
“This should have a price-supportive influence,” he said.
His presentation happened before Statistics Canada dropped its production estimate by 670,000 tonnes.
World oil and meal prices for a number of commodities are already about 40 percent higher than the previous five-year average.
“Most oilseeds, oils and meals have rallied to six-year highs recently,” he said.
They could be heading higher due to problems with South America’s soybean crop.
Rainfall in September, October and November has been “sharply below normal” resulting in the worst drought in 30 years in that part of the world.
Precipitation is in the forecast for December and those rains will be crucial in determining the outcome of this year’s crop.
“If they are not widespread and at least close to normal, a crop failure in South America cannot be prevented,” said Mielke.
“It’s a very critical situation.”
Oil World forecasts a four million tonne decline in South American soybean production to 198 million tonnes in 2020-21, but it could be a lot more than that.
The publication estimates 131 million tonnes of Brazilian production but Mielke now thinks it could be below 130 million tonnes.
U.S. stocks are going to be extremely tight with lower production and higher exports and crush than originally thought.
Oil World forecasts five million tonnes of U.S. ending stocks in 2020-21, down from 14.25 million tonnes last year.
If South America has a short crop and the U.S. is forced to crush more soybeans, that number could fall to a paltry three million tonnes or less, he said.
That would boost U.S. soybean prices and drag canola along for the ride.
It is a similar tight scenario for the other major oilseeds. World sunflower production is down 5.2 million tonnes due to dry conditions in Russia and Ukraine.
“Market participants were surprised by the magnitude of the decline in sunflower seed production this year,” he said.
That is resulting in reduced sunflower oil and meal production, shifting some demand to soybean and rapeseed/canola crushers.
World soybean crush is expected to rise 12.6 million tonnes, versus a 7.4 million tonne increase the previous year.
World palm oil production is down 4.5 million tonnes due to the lagged impact of dry weather last year, reduced fertilizer application and a shortage of plantation workers.
Mielke only expects a limited rebound in production next year.
Palm oil prices have “skyrocketed” and that is also having a positive impact on canola.
World rapeseed/canola imports are expected to climb to 16.72 million tonnes in 2020-21, an eight percent increase over last year.
Canada will account for 10.7 million tonnes of the 16.8 million tonnes in global exports, up from 10.04 million tonnes last year.
The European Union is going to lead the way in imports with 6.33 million tonnes, up slightly from last year’s 5.98 million tonnes.
Mielke said the Ukraine has pretty much shipped all the canola it can to the EU, so it is now up to Canada and Australia to fill the remaining void.
He believes Canadian canola is priced too high and there needs to either be a temporary setback in Canadian prices or an increase in EU rapeseed prices.
U.S. soybean prices are at a premium to EU rapeseed prices in Rotterdam, which is a highly unusual occurrence.