ICE Futures Canada canola contracts ran into upside resistance during the week ended May 12, as the commodity’s own supportive fundamentals were countered by the much more bearish outlook for U.S. soybeans.
Canadian canola supplies are looking rather tight, with Statistics Canada showing only 6.6 million tonnes in the country as of March 31. That’s about two million tonnes lower than at the same time the previous year, which means exports and the domestic crush will need to slow down or supplies will run out.
Both exports and the domestic crush are running well ahead of the year-ago pace, with exports of 8.6 million tonnes and a crush of 7.2 million tonnes (as of May 7, according to the Canadian Grain Commission), each about 800,000 tonnes ahead of what had moved through the system at the same point in 2016.
Rationing that demand could lead to price spikes over the next few months if any buyers get caught short. On top of that, concerns over last year’s unharvested fields and this year’s seeding delays add another layer of support.
Estimates vary, but a significant number of acres in Western Canada still must be cleaned up from 2016. In some cases no crop will be salvaged, and the clock is running out for getting fields in a state to seed something new for 2017.
If the U.S. soybean crop were in the same situation, the U.S. market would be well above current levels. However, canola doesn’t operate that way. The Canadian oilseed is limited by what happens in the U.S., and the soy situation is much more bearish.
Soybeans moved lower during the week, with ample supplies and ideas that U.S. acres may end up larger than original expectations weighing on prices.
The U.S. Department of Agriculture last week released its monthly supply/demand report, which included the first official estimates on 2017 production. The U.S. soybean crop is forecast at 4.255 billion bushels, which would be down slightly from the 4.307 billion grown the previous year. However, ending stocks are still forecast to rise to 480 million bushels, from 435 million for the current crop year, hitting their largest in a decade and their third largest ever.
Wet weather in some parts of the U.S. Midwest keeps causing seeding delays for corn, which has the market pricing in ideas that some intended corn acres will shift into soybeans.
CBOT corn bids held relatively rangebound during the week, although the Midwest’s weather issues kept the bias pointed slightly higher.
U.S. corn ending stocks for 2017-18 are forecast by USDA at 2.11 billion bushels, compared to 2.295 billion for the current marketing year.
For wheat, all three U.S. markets were trending lower during the week, as ample world supplies countered the small U.S. production estimates.
U.S. wheat production for 2017-18 is forecast at 1.82 billion bushels, which would be down by about 500 million bushels from the previous year and the smallest U.S. wheat crop in over a decade.
USDA also expects a 15-million-tonne decline in world wheat production, to 736 million tonnes. However, demand is also expected to be down, and total world wheat ending stocks are forecast to rise to a record 258 million tonnes by the end of the 2017-18 marketing year.