Statistics Canada recently lowered its canola estimate, which should support prices, but futures values continue to fall
The fundamentals in the canola market are positive, but the futures market continues to struggle.
After a brief rally due to the Statistics Canada report in the first week of December, the canola market has peaked and is now moving down back toward the recent contract lows.
Oilseed fundamentals remain conflicted with record soybean production expected, which is providing negative pressure for prices. Conversely, the vegetable oil complex is tightening and supporting prices for palm oil. Remember that palm oil is the world’s largest traded vegetable oil.
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The U.S. Department of Agriculture confirmed these trends in the latest WASDE report with world soybean production moving up to record 427.14 million tonnes. This production level is primarily due to record production in South America this year.
In its December report, the USDA increased Argentina’s production to 52 million tonnes. Although soybean production is 3.8 million tonnes above last year, it is nowhere near the record of 61.5 million tonnes in 2014.
Brazil is largely responsible for the new record production with the USDA projecting a crop of 169 million tonnes.
The department left U.S. production unchanged along with projected ending stocks. These are the bearish fundamentals for the soybean market.
The bullish fundamentals for vegetable oil markets also made their appearance in the WASDE report.
U.S. soybean oil exports were increased by 500 million pounds from the previous month with a total of 1.1 billion pounds (499,000 tonnes) of exports expected to be shipped this year.
The USDA reports that exports of 480,202 tonnes are already committed to be exported this year. This is bullish for U.S. and global soybean oil prices.
Canola fundamentals tightened considerably with the release of the new Statistics Canada production estimate of 17.8 million tonnes. This was down by more than 1.1 million tonnes from the previous estimate. This will reduce the ending stocks for canola below the current projection by Agriculture Canada of 2.20 million tonnes.
The news should support canola prices, but futures values continue to move lower.
The good news for Canadian canola is that it is rapidly becoming the cheapest oilseed available in the world market, which should eventually help support canola values. In the meantime, ICE canola futures are being priced at nearby a $200 per tonne discount to European rapeseed futures.
