A trend of steady canola futures prices this fall broke in mid-November, with prices pressured lower by falling crude oil, a strong Canadian dollar and increased farmer selling.
The price direction in coming weeks is difficult to determine as the crude oil market faces geopolitical uncertainty.
Another uncertainty is South America’s soybean crop. Early promise of a bumper Brazilian crop offsetting drought in Argentina is less certain after drier November weather in central Brazil.
January canola futures traded in a range of about $860 to a little more than $900 a tonne for most of October and early November.
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But on Nov. 16 a trend lower developed, knocking the price down to less than $815 as of Nov. 25, down almost eight percent over the eight trading days.
For two weeks, all vegetable oil crops felt downward pressure from the falling crude oil market. In October and early November, West Texas Intermediate oil futures had climbed for several weeks, peaking at about US$92.50 a barrel Nov. 7 but then swung to a steady decline, falling to less than $77 by Nov. 25, a decline of 16 percent.
Crude’s price direction influences vegetable oil because of its use in biofuel.
The downward pressure on crude came from expectations that rising cases of COVID in China would trigger new shutdowns that would cool demand from the world’s largest oil importer. Worries about the potential for recession in many countries also weighed down crude and other commodities.
The oil market also has been affected by uncertainty about a price cap that an alliance of G-7 countries, the European Union and Australia plan to put on Russian oil.
Crude’s weakness bled into oilseed markets for several days but by last week soy oil found a firmer footing.
However, canola continued to fall. Possible reasons include chart-based technical weakness, a stronger Canadian dollar and panic selling by farmers.
The future direction of the crude market will continue to affect the canola market. Additional factors to watch include the Statistics Canada production of principal field crops report scheduled for Dec. 2. Is the current estimate of 19.1 million tonnes of canola correct?
Another potential major market mover is the weather in South America.
A major factor that will impact the oil market is the Dec. 4 meeting of the Organization of Petroleum Exporting Countries and Russia, known as OPEC+.
Last month the cartel agreed to trim output to match what it expects will be a global economic slowdown in 2023. Last week, the Wall Street Journal reported OPEC might switch tactics and increase production, but Saudi Arabia quickly dismissed that report and expectations are that the production cut plan will continue.
OPEC and the rest of us will continue to closely watch for signs of whether central bank interest hikes are pushing down inflation. Some indicators, such as the housing market, are slowing, prompting optimists to hope for a tapering of interest rate increases and a defeat of inflation without pushing economies into recession.
But it is too early to say one way or the other.
It is also early in the production cycle of South American soybeans, but unease is creeping into the outlook there.
In the pre-seeding period, there were strong ideas that a massive Brazilian soy crop would offset drought problems in Argentina.
The La Nina continues, but Brazil enjoyed good rain in September and October. With a large increase in seeded area expected, forecasters put their production estimates in a range of 150 million to 153 million tonnes, a record large crop about 20 percent or 24-25 million tonnes larger than last year.
By the time you read this, seeding will be almost complete and many farmers there will look for rain because November moisture was elusive.
Long-term models for December show potential for dry weather to continue in southern provinces, but some models show January might have a better chance for rain.
For now, the forecasts remain for 150 million tonnes or more of soybeans, but timely rain will be needed and in a La Nina year, that is harder to come by.
Things are much worse in Argentina.
The pre-seeding forecast was for about 51 million tonnes of soybeans, up from 44 million last year, but that is already being trimmed.
Only about 20 percent of the crop is in the ground, down from about 40 percent normally, the Buenos Aires Grains exchange said Nov. 24. Farmers are delaying because they fear soils are too dry to allow germination.
If rain does not come soon, acreage might be reduced. However, Michael Cordonnier of Soybean and Corn Advisor thinks it is more likely that farmers will switch corn acres over to soybeans because the oilseed requires less moisture.
Several climate models suggest December will continue dry in Argentina’s crop regions.
