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Canola demand rationing already underway

ICE November canola has dipped to around the $850-per-tonne mark for now

Consensus in the grain trade suggests StatsCan’s latest estimate predicting a 14.7-million-tonne canola crop this year will turn out to be generous in hindsight.

ICE Futures canola contracts fell sharply lower during the week ended Sept. 10, hitting their weakest levels in a month as speculative profit-taking weighed on the market.

From a chart standpoint, November canola fell below both its 20- and 50-day moving averages during the week, which was bearish from a technical standpoint. However, it found some support around $850 per tonne. A test below that level could set the stage for a move down to the 100-day moving average, near the psychological $800-per-tonne level.

Drought and poor production prospects have been baked into the futures for some time, but the actual size of the crop remains to be seen. Canola yields in the single digits of bushels per acre were being anecdotally reported in some areas, with other regions that saw much-needed rains faring significantly better. The general consensus seems to be that production won’t live up to the 14.7 million tonnes forecast by Statistics Canada, but the true size of the crop won’t be known until well after the harvest is complete.

Saskatchewan’s Agriculture Department released yield estimates during the week, pegging average canola yields across the province at only 20 bushels per acre. That’s seven bushels below Statistics Canada’s August all-Canada estimate in the country’s largest producing province.

Whatever the final number, there won’t be enough canola around to meet the same demand that’s been seen in recent years. Something will have to give, and demand rationing should be expected to keep a lid on the upside in canola.

Data from the Canadian Grain Commission shows that rationing is already underway, with only 282,900 tonnes of canola exported through the first five weeks of the 2021-22 crop year. That’s about 600,000 tonnes behind the previous year’s pace.

In addition, there was apparently more old-crop canola hiding out in bins than the market anticipated. A Statistics Canada stocks report showed a 1.8-million-tonne carry-out as of July 31, 2021. While that would be well below the previous five-year average and about half of the ending stocks posted the previous year, the supplies were still about 500,000 tonnes above most trade guesses.

The soybean and corn harvests in the United States are still some time away from getting rolling in earnest, with relatively favourable crop weather over recent weeks thought to be boosting crop prospects. Yields and harvested area for both crops are generally expected to show some improvement from earlier estimates, which could keep a lid on the upside.

For wheat, larger-than-expected Canadian wheat stocks were a bearish jolt and accounted for some selling pressure in the U.S. futures. However, much like canola, the declining crop prospects for the 2021 spring wheat harvest — in both Canada and the northern U.S. — remained somewhat supportive.

About the author


Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.



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