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Canola prices have opportunity to make further gains

Several developments lifted oilseed prices last week but gains in canola are lagging behind the pace set by soybeans.

There is an argument that canola’s supply and demand picture is tighter than what official forecasts indicate and it is time for its price to catch up.

But first, here is what happened last week.

Strong trade and concerns about dry weather in South America continued to support the oilseed sector but the galvanizing event last week was a report cutting American soybean production and ending stocks.

The United States Department of Agriculture’s November supply and demand update cut the estimated yield of the domestic crop to 50.7 bushels per acre from 51.9 bu. in the October report.

It cut domestic production to 4.17 billion bu. from 4.8 billion and ending stocks to 190 million bu. from 290 million.

Stocks are now the smallest in seven years and the stocks-to-use ratio is only 4.2 percent. The global agricultural commodity banker Rabobank said soybean stocks are in “the danger zone.”

Global soybean stocks are also the tightest in seven years.

The news outweighed jitters about the pandemic. Chicago soybean futures jumped about 4.5 percent on the day of the report and held on to most of the gain by the time trading ended the week.

Indeed oilseeds have risen for months with soybeans in the lead.

In the two months from mid September to mid November, the Chicago January contracts for soy meal were up more than 19 percent, soybeans more than 14 percent and soy oil more than seven percent. The January ICE canola contract gained more than five percent.

The soy oil and canola contracts were held back by periods of weakness in petroleum oil. Canola was also held back by the Canadian dollar that rose to US77 cents Nov. 9, the highest point since January, before trailing back toward US76 cents by the close of the week.

The next big report for Statistics Canada comes out Dec. 3 when we will learn whether the current forecast of 19.4 million tonnes of canola production is correct. 

In my Oct. 29 column, I noted that the Saskatchewan and Alberta agriculture departments estimated canola yields lower than StatCan’s. If the provinces were more accurate it would imply a crop closer to 18 million tonnes.

Also, Agriculture Canada’s supply and demand spreadsheet estimates full year canola exports of 10.2 million tonnes, similar to last year.

However, canola exports in the first 14 weeks of the current crop year are 3.413 million tonnes. That is 48 percent ahead of the pace last year.

This raises questions.

  • Is export demand front-loaded this crop year and will it drop off later or will the full year export total be larger than 10.2 million tonnes?
  • If the crop winds up smaller than the current forecast and export demand continues strong, will the price have to rally to ration demand so we don’t run out before the end of the year? 

Time will tell.

One drag on the vegetable oil component of the oilseed complex in coming weeks could be petroleum oil as the worsening pandemic restricts travel and reduces fuel demand.

But on the other hand, vegetable oil values are supported by palm oil prices that hit an eight-year high last week.

Pandemic-caused shortages of imported labour continue to restrict production in Malaysia and demand has been strong this autumn from India and China.

Analysts expect strong demand to continue to support palm oil prices but some also warn that the high prices have made palm-based biodiesel more expensive than petroleum diesel.

That might cause Indonesia to put off its plan to increase in 2021 the amount of palm oil in biodiesel to 40 percent from 30. Expectation of that increased fuel sector demand has supported palm oil prices.

The direction of oilseed prices is also strongly influenced by worries about La Nina and its potential to limit rain in South America .

It is already unusually dry in parts of Brazil, Argentina and Paraguay.

However, Brazil’s government crop forecaster, Conab, expects soybean production there to rise to 134.9 million tonnes, up eight percent over last year’s 124.8 million.

That is based on an expected 3.5 percent rise in seeded area and a 4.4 percent jump in yield.

That yield increase is surprising given the outlook for at best spotty rain as the La Nina sets in for a multi-month stay.

Last week the U.S. Weather Service raised its expectation of the La Nina continuing to March to 95 percent, up from 85 percent last month. The service thinks the La Nina will be a strong one, peaking in November to January.

The chance of La Nina continuing into May was 65 percent.

After a slow start, seeding of Brazil’s soybeans has picked up with 56 percent in the ground last week, compared to 58 percent last year.

In Argentina last week, 20 percent of the expected 42.5 million acres of soybeans had been seeded. That is a little smaller than last year’s crop of almost 43 million acres.

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