For the most part, the week ended June 16 could have been much worse for canola, as declines should have been more severe. From June 9 to 16 the old-crop July contract lost $45 per tonne, while new-crop November gave up $38.
One reason for the decline was a general sell-off in the global vegetable oil market. That, coupled with downturns in world crude oil prices, put pressure on the Canadian oilseed.
Also weighing on canola values has been some measure of seasonal pressure. As spring planting wraps up, there is the ever-present hope for a good year. Much-needed rain fell on parts of the western Prairies that have remained in drought, which will help struggling crops.
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Conversely, there is also a good measure of uncertainty surrounding this year’s crops. It remains to be seen how well those thirsty fields recover. Also, the eastern Prairies are drenched, which slowed spring planting. However, the idea is that crops where it’s wet should get off to a good start, although indications are there will be unplanted acres in eastern Saskatchewan and southern Manitoba.
Due to last year’s poor production, canola supplies remain quite tight. After 45 weeks into the 2021-22 marketing year, producer deliveries of canola amount to 12.83 million tonnes, according to the Canadian Grain Commission. That’s 69 per cent of what was hauled in this time last year.
Canola exports this year of 4.69 million tonnes are 48 per cent of what had been shipped out of Canada a year ago. Domestic usage is lower, but not as dramatically. At 8.06 million tonnes, in-country use stood at 86.7 per cent of last year’s amount.
Fears of a recession arose after a number of central banks hiked their lending rates in order to cool down inflation. The U.S. Federal Reserve increased its interest rate by 75 basis points, and the Bank of Canada is widely expected to follow suit next month. In turn that has pushed global crude oil significantly lower. As the price of crude affects biofuels, that means the spillover is quickly felt in the oilseeds.
Also, those interest rate increases pulled down the Canadian dollar. Instead of rising toward 80 U.S. cents, the loonie has fallen back hard and was trading below 77 U.S. cents. That made canola less expensive and more palatable to overseas customers.
One thing that’s now quite visible is the end of canola prices being inverted on the ICE Futures platform. While the nearby July 2022 contract remains the highest priced, values beyond November 2022 are higher through the January, March and May 2023 contract months respectively.
A decent crop — something relatively close to average — should push the canola market back towards traditional price levels.
