Canola prices have broken out of their post-August downtrend, but whether the uptrend will last and whether China is actually back in the market is anybody’s guess.
A recent sale of Canadian canola to China is being seen by many as a hopeful sign that one of Canada’s biggest purchasers of canola is re-entering the market.
But future Chinese purchases are still in doubt as uncertainty reigns over whether China has permanently settled the issue over accepting genetically modified grains and oilseeds.
“It seems a little bit unsure right now,” said one canola trader, who asked to not be identified.
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China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
“Through my contacts it’s not a resolved issue. Until those vessels unload, it’s not a proven done deal.”
Bill Mooney, a spokesperson for James Richardson International, said his company had concluded a recent sale to a Chinese buyer, but would not confirm whether it was for 100,000 tonnes as rumours had suggested.
He said the canola will soon be on its way to China.
“We have a boat loading as we speak,” said Mooney on Nov. 5.
The sale occurred in a week that saw canola November futures prices jump from $324.50 on October 29 to $346 on Nov. 2. The November contract closed at $344.50 on Nov. 5.
The market has been falling since August, when prices peaked at about $370. By Oct. 22 prices had fallen to $321.
Market analyst Mike Jubinville of Pro Farmer Canada said Chinese demand might have sparked the recent rally, but it was supported by technical factors.
“It was an instigator for igniting a rally in canola futures that we’ve seen in the past week,” he said Nov. 5.
“Once the market gets its momentum going, built in through a number of technical indicators, it continued its way up just based on chart factors.”
Commodity funds were significant in the rally, he said.
But analysts are split on whether the rally will continue.
“There’s a feeling that there’s more business being done, considering the volume of trade in the past few days, but that’s yet to be confirmed,” said Jubinville.
“There’s also a sense that we might be getting a little overbought here. World vegetable oil markets have started to move up, but canola has moved ahead of everybody and is holding a significant premium in the marketplace. Some people are beginning to question whether this is sustainable.”
Jubinville believes canola prices will increase during the second half of the crop year, in late spring and summer, as the reality of a short crop begins weighing on users.
But the next few months are much less certain, said Jubinville.
“Unless we get renewed export demand into the marketplace, or vegetable oil markets continue to keep rising, canola’s going to have a hard time hanging on to this,” he said. “Are we establishing a new trend in the marketplace? I guess that’s where the debate really is.”
Alberta Agriculture grain market analyst Charlie Pearson said China is only one of a number of factors that will affect prices this winter.
“It’s not the be-all and end-all in the market,” said Pearson.
But he said a perception of greater demand recently has improved the outlook.
“There’s a little bit more buzz in the oil market.”
But China’s true intent remains unclear.
China has been a major buyer of U.S. soybeans and Canadian canola in recent years, but this fall its purchases have evaporated because of its statement that imports of GM grain would have to meet unspecified safety standards.
China has now agreed to accept United States Department of Agriculture safety declarations on U.S. soybean imports.
Whether that means the Chinese border will open to imports of Canadian canola is not known.
Jubinville said Canadian sellers and Chinese buyers have been cautious.
“No one in the commercial business, on this side of the ocean or their’s, was sure what was going to happening with these rules,” said Jubinville. “We have just let business lie low. We weren’t going to be pursuing anything at this time until we get a better understanding of what is going to be allowed and what isn’t.
“The last thing you want is a boatload of canola sitting in Shanghai harbour that you can’t unload.”
Chinese demand has been met by South America, where Brazil is still an officially GM-free soybean supplier.
Manitoba Agriculture grain market analyst Carol Gunvaldsen said U.S. president George W. Bush’s recent visit to China has raised hopes in the grain industry, because soon afterward the Chinese announced their new openness to U.S. soybeans.
“Maybe they did work something out on that visit,” she said.
There is not always a clear central Chinese authority dictating import and export policy.
“It’s not one place,” said Jubinville.
“We always think of China as one big homogeneous country, when it’s really not. It’s 12 or 15 independent states when it comes to these issues with oilseeds trade.”
It seems as though the different regions don’t act together, he said.
