April 8 – Canola Weekly GrainCents Digest

Canola prices headed higher this week as the weather concerns and the potential for fewer acres getting seeded pervaded the market.

 

Canola prices headed higher this week as the weather concerns and the potential for fewer acres getting seeded pervaded the market. 

Here’s a breakdown of last week’s action on the contracts that we’re watching:

  • May 2018: +1.7% or $9.10 to $531.80 CAD / metric tonne
  • July 2018: +1.7% or $8.90 to $537.30 CAD / metric tonne
  • Nov 2018: +1.1% or $5.70 to $522.30 CAD / metric tonne
  • Jan 2019: +1.0% or $5.10 to $525.20 CAD / metric tonne

The threat of a trade war US and China became very real on Wednesday when China announced that they were proposing plans to slap import tariffs on US agricultural products, namely soybeans. This was in retaliation to America’s previous suggestions of about $60 Billion in tariffs on Chinese goods.

Brennan and Garrett provided extensive coverage of this event and their implications for producers in the Breakfast Brief and Grain Markets Today respectively.

In the aftermath of this, canola prices were following soybean prices around until Friday. That’s when canola prices grinding a few dollars higher to a new winter high.

There are expectations that the canola market could benefit from additional demand coming from China. We know that Canada was China’s largest supplier of canola meal back in 2016. Could that be the case going forward? It’s certainly a possibility if the 25% import tax on US soybeans was implemented, but it’s not a huge amount of canola meal for the record.

 

Coming back to prices, strong domestic disappearance and export paces are also supportive.

 

On Friday, as mentioned, canola prices grinded higher. The November 2018 contract for new crop canola hit an all-time high, but this was mainly to do with winter sticking around more than most. Slow-melting snow and wet weather conditions in Western Canada could impede seeding this spring and limit the number of canola acres actually get seeded. Right now, Ag Canada ’s estimate is for 24 million acres!

This past week, we looked at what are the weather implications for canola’s supply and demand structure.In this scenario, we walked through a scenario where 23.5 million acres of canola gets seeded in Western Canada this spring.

In this scenario, the net result is ending stocks falling to 824,000 tonnes, which would be a drop of more than 50% from the 2.25 million tonnes expected to be available at the end of 2017/18. Clearly, this would be bullish and support upside price potential. Accordingly, the stocks-to-use ration could fall from 10% in 2017/18 to almost 4% in 2018/19.

Could we see something in the neighborhood of $600 CAD per metric tonne in 2018/19 on the futures board in Winnipeg? We’d put that likelihood at about 20% today.

One of the things keeping a lid on canola prices will be record acres globally. A few weeks ago, we noted that Australian canola acres will climb by 8% in 2018 to more than 7 million acres

The USDA attaché in India is pegging Indian rapeseed production at 6.4 MMT  in marketing year (MY) 2017/18 (Oct-Sept) that is 9% below last year due to a net decline in planted area.

In a recent report, the USDA attaché in the EU indicated that European farmers planted more rapeseed in the fall of 2017. The US attache is estimating the EU rapeseed acres at 17 million acres in 2018/19. This would be up 4% from 2017/18’s EU rapeseed area of 16.3 million acres. Total rapeseed production is expected to climb nearly 8% year-over-year to 22.1 million tonnes.

The EU rapeseed acreage expansion was triggered by acreage expansions in France and Romania. Increased rapeseed crop profitability in the latter nation, has led to a sharp expansion of rapeseed sowings, up 16% year-over-year to 1.7 million acres in 2018/19. This is also the highest its been in 15 years. That is also the past 15 years record high for this country.

Looking ahead to next week’s, there is the USDA’s WASDE report down the pipeline. Canola prices may take some bearish hits if the average guesstimate for higher US soybean ending stocks is realized.

In our most recent canola sales recommendation last Tuesday, we’ve moved to 100% sold on 2017/18 old crop canola and 40% sold on 2018/19 new crop canola.

Seeing new crop canola prices push up above $530 CAD per tonne price would be an important milestone for the new crop market in the next week.

P.S. We saw terrible tragedy in Saskatchewan this weekend, with the Humboldt Broncos junior hockey team bus getting in a significant accident. 15 members of their team passed. This one hit home for us. Feel free to read a few thoughts on what “the bus” means from Brennan’s perspective.

– Brennan, Garrett, and Adrian

 

 

April 6 – Why Does the EU Hate Palm Oil and Can it Help Canola?

April 6 – What Are Weather Implications for Canola’s Supply & Demand in 2018/19?

April 5 – Will Bill C-49 Be Enough to Fix Canada’s Rail Problems?

April 1 – Canola Weekly GrainCents Digest

March 29 – USDA Projects 2.076 Million Acres of Canola

March 29 – Big Demand Come Summer for Palm Oil?

March 29 – There Appears to Still Be a lot of Canola / Rapeseed

March 27 – GrainCents Crop Sales Position Update

March 25 – Canola Weekly GrainCents Digest

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.