April 29 – Canola Weekly GrainCents Digest

This week, canola prices dipped despite a bullish surprise in Canadian acreage on Friday, which actually saved the market from worse losses.

This week, canola prices dipped despite a bullish surprise in Canadian acreage on Friday, which actually saved the market from worse losses. Before we dive into the supply and demand factors for the week, let’s look at changes in futures contracts.

  • May 2018: -0.3% or -$1.50 to $533.30 CAD / MT
  • July 2018: -0.3% or -$1.40 to $532.40 CAD / MT
  • Nov 2018: -0.4% or -$2.00 to $517.90 CAD / MT
  • Jan 2019: -0.4% or -$2.20 to $521.70 CAD / MT

 

Canadian Canola Acres Surprise

On Friday, StatsCan released its farmer-survey based results of 2018 acreage intentions in the Great White North. Going into the report, the market was expecting to see between 23.7 million and 24.3 million, so we could argue that this report is relatively bullish for canola prices.   

Canada’s statistical agency threw a bone to the Canadian canola farmer (and market). The agency said that Canadian producers will plant a little under 21.4 million acres of canola in 2018/19, which would be down 7% year-over-year. Major cuts of the canola acres in Saskatchewan and Alberta are the main triggers for this decrease.

According to StatsCan survey, Saskatchewan farmers expected to cut their 2018/19 canola acres by roughly 1.34 million acres or 10% to 11.4 million acres. Next door in Alberta, canola acres will shrink by 280,000 acres or 4% to 6.65 million acres.

 

In the aftermath of the report, new crop canola futures did not react too bullishly though. The November 2018 contract just managed to reverse the weekly bearish downtrend, as shown on the chart. 

It’s more the question of whether or not the market believes this number probably comes down to one thing: soil moisture. There are plenty of places in fringe areas around Saskatchewan and Alberta who are certainly concerned about planting a very expensive canola crop into dry conditions, when you could spend a lot less money planting lentils or peas or spring wheat still (as the report showed, Canadian farmers are indeed planting more acres of these crops that the market was expecting).

Ultimately though, the market will let the data sink in over the weekend and we’ll have to see where the market opens on Monday (tomorrow). There’s likely to be some volatility as the rumors are likely spreading already about whether or not this 21.4  million acre number can be trusted or not. in the green again, but expect some volatility if it does.

On the crop movement front, CGC data updated to Week 38 (ending April 22) show that cumulative canola exports are falling behind last year’s pace.

Cumulative domestic disappearance remains strong. It is tracking last year’s crush pace very well.

$600 CAD / MT Canola?

This week, we reported that Mexico’s rapeseed imports will remain strong. Considering that Canada is Mexico’s dominant supplier of canola this an additional bullish factor for new crop canola prices. That is if NAFTA holds up and we aren’t blindsided by something unexpected like a new tariff on canola imports or something. We’re not saying this is likely, but it’s certainly not off the table.

Could we see something in the neighborhood of $600 CAD per metric tonne in 2018/19 on Winnipeg ICE futures board? It is certainly in the cards but it will all depend on the weather and production concerns as we start the growing season.

A weaker Canadian Dollar and support from stronger soybean oil futures would certainly help things. However, soyoil values are unfortunately falling but the Loonie is playing ball More specifically, this past week, soyoil futures in Chicago lost 2.4% while the Loonie lost nearly a full cent in the past week. For the month of April though, soyoil values are down by nearly 3.5%, while the Canadian Dollar has appreciated 0.5%.

On the sales front, we are at 40% sold for 2018/19 new crop canola, and 100% sold on 2017/18 old crop canola.

Given the number of surprises that have come at us, including the potential for Chinese soybean tariffs and the recent StatsCan acreage report, we’re still very accepting of our call to sell the remainder of our old crop canola at this time a month ago. At the time, there were more bearish factors at play (5 to be exact) than bullish ones.  

While the market this week toyed with old crop canola prices above $537, the risk of holding out for $5-7 CAD / MT more than what we were getting a month ago was too great.

Also, new crop canola prices that we targeted a month ago are virtually identical to what they are today with the high of the November 2018 contract seen on April 9th at $524 for a hot second before closing at $521.

Coming back to thoughts of $600 / MT canola though, we’d like to see the market move past this lines in the sand. It might be worth re-reading our sales recommendation thesis from a month ago in the link provided as the case for more bearish factors than bullish ones are still intact.

Again though, soil moisture is the key question. With farm margins already depressed because of plentiful wheat supplies and India basically closing off its pulse imports, is this the year that farmers gamble big on canola? Or are StatsCan’s numbers telling the truth?

Moving forward, we’re going to be looking more closely at soil moisture and precipitation in Western Canada to get a better understanding where this market may pop up to on weather alone.

Have a great week!

– Brennan, Garrett, and Adrian

 

 

 

April 27 – StatsCan Expects 21.38 Million Acres of Canola in Canada in 2018/19

April 26 – Less Soybeans in China Means More Palm Oil in China?

April 25 – How is Malaysia’s Labour Shortage Good For Canola Prices?

April 25 – What Might Mexico’s Rapeseed Market Look Like in 2018/19?

April 22 – Canola Weekly GrainCents Digest

April 20 – The Rise of the Romanian Rapeseed Market

April 18 – What Might Europe’s Rapeseed Market Look Like in 2018/19?

April 18 – Who’s Running The Show for US Free Trade?

April 15 – Canola Weekly GrainCents Digest

April 12 – Non GMO Demand is Booming. What’s on Your Plate?

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.