March 25 – Canola Weekly GrainCents Digest

Canola prices slumped a bit this week. Late in the week, canola markets also saw some focus on planting expectations for the new year.

Canola prices slumped a bit this week, following the soybeans complex and palm oil prices lower. Late in the week, canola markets also saw some focus on planting expectations for the new year. Other than that, the week was fairly quiet although it’s worth mentioning that canola prices stayed fairly resilient despite the Canadian Loonie climbing back up 77.5 cents, up about a cent week-over-week.

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

  • May 2018: -0.5% or -$2.5 to $520.60 CAD / metric tonne
  • July 2018: -0.5% or -$2.7 to $525.70 CAD / metric tonne
  • Nov 2018: -0.6% or -$2.9 to $515.00 CAD / metric tonne
  • Jan 2019: -0.6% or -$2.9 to $518.90 CAD / metric tonne

According to Agriculture Canada, Canadian farmers are set to plant about 24 million acres of canola this coming spring. One might think that the near-one-million-acre increase in Canadian canola for Plant 2018 offers the potential for a significant jump in production and ending stocks. But that’s not the case, according to the USDA.

The crop offers more opportunity to profit than its alternatives like wheat, despite the similar acreage rise for the latter crop category. Farmers have pushed both higher, thanks in part to the India tariffs that have limited optimism in profitability when planting lentils and/or peas.

With that in mind, the USDA doesn’t believe that higher acres will warrant greater production. The USDA attaché in Canada projected 2018/19 canola production at 20.5 MMT in 2018/19, meaning it won’t beat last year’s record crop. This is below the AAFC estimate and the International Grains Council’s most recent forecast of 21.7 MMT. The IGC says that Canadian farmers are set to “boost acreage amid perceived attractive returns and prospects for elevated traded volumes. The overall increase in area is expected to more than offset a return to average yields.”

So, who is right? It depends on rotation, which we require greater insight on moving forward.

This week, our team sat down to discuss what is happening with canola production. Rotation issues are clearly at play. When farmers plant canola on top of canola, yield potential declines by about 15%.

The only way that the uptick in acreage would result in a related increase in production is if there would be 100% natural rotation.

Once the crop is planted, there is any number of factors that could impede strong yields and a record crop. Drought always jumps to the front of the line, particularly due to recent headlines in North America on winter wheat output and South America on Argentine corn and soybean production.

But then there’s the ugly factor that no farmer likes to consider: Disease.

The USDA’s Ottawa attache flagged the possibility that club root could expand this year due to lack of rotation.

“Despite the fact that clubroot results in lower yields, Alberta producers have been extending canola planting years and delaying traditional crop rotations, in part, because a low-yielding canola crop can earn more than a good-yielding wheat crop,” the attache said this week.

On the grain movement front. CGC data for Week 33 of the crop year (ending March 18) showed that weekly canola exports are slowing down. They were pegged at 174,200 tonnes, down almost 30% from the 243,800 reported for the week before. Year-to-date exports are now sitting around 6.6 million tonnes. This is down 4% from the 6.85 million tonnes shipped out at the same time in 2016/17. However, it’s up 10% from the 3-year average for this time of year, 6 million tonnes.

Similarly, farmer deliveries have been strong, indicating healthy selling by farmers taking advantage of the higher prices.  According to CGC data, roughly 406,000 tonnes of canola were delivered by Canadian farmers to licensed elevators in Week 33, up nearly 20% from 341,000d reported for the week before. Year-to-date farmer deliveries are pegged at a little more than 12.6 million tonnes, about 4% below the 13.15 million tonnes reported at the same time a year ago.

Turning our attention to Europe, rising rapeseed production could push major exporters’ stocks to their highest levels in 10 years. This week, the International Grains Council hiked global production of rapeseed/canola to a new record 75.6 of million metric tonnes for the 2018/19 crop year.  That is about a 900,000 increase year-over-year.

The good news is that rising demand will help offset record output. The IGC also says that demand will increase by 1.7 MMT to 75.8 MMT. With that in mind, global rapeseed inventory levels are going to decline about 300,000 MT to 5.3 MMT.

Now, why did we say that major exporters were going to face a glut? Well, the EU and China are both expected to see declines in stocks. But Canada, Australia, and Ukraine are all expected to have a combined inventory level of 3.1 MMT. That would be the highest combined total for that data since 2009/10.

Heading into the new week, we remain 80% sold on old crop and 30% sold on new crop. We’re extremely cognizant of quick blips in the market due to currency, following any bullish moves in soybeans, or export or domestic demand numbers improving.

Have a great week!

– Brennan, Garrett, and Adrian

 

 

March 18 – Canola Weekly GrainCents Digest

March 14 – What Is Going to Happen to Canola Basis in the Next Few Months?

March 11 – Canola Weekly GrainCents Digest

March 9 – Australian Canola Acres Win Big in the 2018/19 Crop Shuffle

March 7 – What to Watch in Thursday’s WASDE Report

March 7 – GrainCents Crop Sales Position Update

March 7 – Weaker Palm Oil Demand Means Weaker Palm Oil Prices

March 7 – Here’s Your Answer to $12 / Bushel Canola

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.