Aug. 26: Sliding Canola Prices – GrainCents Canola Weekly Digest

Canola prices continued to slide lower, following the soybean complex downwards thanks to ongoing trade issues in the United States.

Current Sales Position:

We are 100% sold on 2017/18 old crop canola.

We are 40% sold on 2018/19 new crop canola.

Good morning,

Canola prices pushed lower this week as U.S. trade problems continue to weigh on the sector. Canola has been following soybean prices lower despite increasing reports of lower Canadian production due to dry conditions. Before we dive into the factors moving canola prices, let’s take a look at the performance of futures contracts for the week.

  • Nov ‘18: -2.5% or $12.80 to $498.10 CAD / metric tonne
  • Jan ‘19: -2.5% or $13.10 to $503.80 CAD / metric tonne
  • Mar ‘19: -2.6% or $13.30 to $508.10 CAD / metric tonne
  • May ‘19: -2.6% or $13.70 to $511.30 CAD / metric tonne

 

Australian Drought Rages

This week, we start in the Land Down Undaa.

Back in June, ABARES (the Aussie USDA) forecasted canola acres there  to decrease nearly 10% year-over-year to 6.1 million acres. Combined with lower yields, they’re forecasting 2018/19 canola production to decline 16% year-over-year to 3.1 MMT.

Areas most affected by the acreage decline include Western Australia, where canola acres has decreased 6% year-over-year to 3.2 million acres and production is forecasted to decrease 18% to 1.6 MMT.

In Victoria, canola acres are down 7% and production is expected to decline 25% to 560,000 MT.

In New South Wales (NSW), canola acres is expected to decline 23% to 1.2 million acres and production is expected to decrease 3% to 600,000 MT.  

Quite simply, dry conditions have hammered many parts of Australia, especially in the east. While NSW and Queensland are the states impacted the worst, this will still be the worst drought that many regions have experienced since 1960.

Thus, it’s widely expected that ABARE’s harvest projections will fall to something that could be easily categorized as the worst winter harvest recorded in a decade.

That being said, according to the Australian Oilseeds Federation (AOF), NSW canola production may drop to as low as 400,000 MT. This would be an 18% decline from the AOF’s previous month estimate of 490,000 MT, but, clearly ⅓ less than ABARES’ current forecast for the region.

If the latest estimates from the AOF are accurate and dry conditions prevail, it is likely that domestic demand may not be met. Ultimately, this will result and a decline of 2018/19 Australian canola exports, opening up the door for Canada into markets like Europe and a few Asian markets.

Canadian Canola Exports Start Slow

This is mind, Canadian canola exports have started slow, but it seems that the pace is picking up.

Through Week 3, the CGC says that 422,500 MT of Canadian canola has been shipped out. This is down 8% year-over-year but 3% worse than the 3-year average of 435,500 MT.

However, the same report indicated that weekly exports of 140,100 MT are up 45% from this time a year ago and up 7% from the 3 year average of 131,300 MT.

A Bigger Canola Crop?

We’re gearing up for next week’s StatsCan’s first estimate of 2018 Canadian crop production on Friday, August 31st. It’s important to note, however, that we’re probably not going to see numbers that reflect the August heat wave that struck the Canadian Prairies.

So far, we’re leaning on the Agriculture and Agri-Food Canada numbers released last week. The agency left their total canola output unchanged from last month, estimating 20.3 MMT.

Of course, the more important number is ending stocks, which AgCanada currently projects for 2018/19 at 2.25 MMT. That number is quite high, and the largest since 2014/15. It’s also more than double what we would consider the range to start being bullish on the carryout factor.

Canola Prices vs. Ending Stocks

AgCanada left their export number at 11.5 MMT.

Though we might see some downturn in this figure due to recent weather pressures, it likely won’t be enough, particularly at a time where soybean prices continue to slide.

Canola Crop Update

In terms of the U.S. canola harvest, 14% of the crop in Montana was combined as of last Monday. This is a up 11 points on the week, but is still behind last year’s pace of 62% and the seasonal average of 43% harvested.

Next door in North Dakota, 27% of the crop was in the bin as of last Monday. This is 10 points ahead of last year’s pace of 17% harvested and the seasonal average. Going into tomorrow’s USDA Crop Progress report, the seasonal average for North Dakota’s canola harvest progress is pegged at 63%.

Canola producers in Saskatchewan have harvested 3% of the crop, which is 1 point ahead of last year’s harvest progress at this time and the 5-year average. Heading into next week, the 5-year average for harvest progress is 15% complete.

Unlike in Saskatchewan, Alberta canola producers have not yet begun harvest. This is slightly behind the 2% combined at this time a year ago. That being said, 59% of the canola crop in Alberta is considered to be in good-to-excellent (G/E) condition. This is slightly above the 56% G/E rating of the Wild Rose province’s canola crop at this time last year.

What we’re more interested in though is Alberta Agriculture’s update on canola yields. The provincial government pegged, the number this past week at 39.4 bushels per acre, a slight bump from the 39.1 bushels per acre forecasted at the beginning of the month.

However, this is still more than 6%% below StatsCan’s 4-year average for Alberta canola yields of about 42 bushels per acre.

For the record though, over the past 4-years, Alberta Agriculture has understated Alberta’s average canola yields, relative to StatsCan’s final yield released in December, by 11%. If this trend continues, Alberta’s canola final average yield from StatsCan would be around 43.5 bushels per acre (and clearly, above-average).

Basis Continues to Widen

Over the last three weeks, canola prices have continued to slide as U.S. trade challenges continue to put downward pressure on the crop. The average canola price in the Prairies has declined by 4% since July 31.

Sliding Canola Prices in Canada

Meanwhile, basis continues to erode across all regions, with the average across the Canadian Prairies widening by 76% in the last three weeks. Western Manitoba has seen the sharpest decline of basis in recent weeks.

Sliding Canola Basis Prices in Canada

Sliding Canola Prices and Basis

Will Canola Prices Continue to Slide?

This week, we reached out to FarmLead’s Mike Wasylyniuk in Canada for some insight into the state of the Canadian canola crop.

Mike said that farms who traditionally report 50 bushels per acre are coming in around 40 bushels. Farms that are up in the 55 bushel range are also reporting lower yields. A downturn of about 15-25% from last year’s yields numbers appears to be the average decline for the first few fields harvested.

Thinking more broadly though, canola prices remain under pressure thanks to soybeans and the ongoing trade war between China and the US. “It will be interesting to watch what happens with this trade war,” Mike said, highlighting that uncertainty remains on whether China will look for more soybean substitutes like canola.

A weaker Loonie will continue to make Canadian canola attractive to international buyers. 2018-year-to-date, the Canadian Dollar has lost nearly 4% to the US Greenback.

Seasonality is another important factor that comes into play around this time of year, with canola prices typically rebounding once the harvesting season is complete, between November and December.

Ultimately though, we’re still seeing price pressure due to proximity to the U.S. soybean market, which continues to sink lower over trade tensions and carryout concerns. Our focus on the grain marketing front continues to be getting the crop off and filling 2018/19 contracts.

As a reminder, on Friday, August 31st, StatsCan will release their first 2018/19 production estimates, from which we’ll be doing our regular GrainCents in-depth analysis on.

To growth,

Brennan Turner
President | CEO

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306-715-4540 (cell)

b.turner@farmlead.com

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FarmLead – North America’s Grain Marketplace

GrainCents

 

 

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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.