Whatever seasonal harvest pressure there was in this drought-stricken year appears to have subsided, with ICE canola futures posting solid gains through the first full week of October. The general supply tightness and need to ration demand remained a supportive influence for the Canadian oilseed, but the latest gains likely had more to do with outside energy and vegetable oil markets than anything else.
Crude oil climbed to seven-year highs during the week on a combination of increasing demand, as the world slowly eases out of the pandemic, and concerns over supply tightness. OPEC+, the Organization of Petroleum Exporting Countries and its allies, announced a decision to hold steady with their planned production increases, rather than increase oil production at a higher rate as some had called for.
Analysts are starting to talk of a worldwide energy crisis, with natural gas prices skyrocketing in Europe and China being forced to impose rolling blackouts due to coal shortages for power plants.
Vegetable oil, including canola, is caught up in the energy market issues due to its usage as a feedstock for biodiesel. Malaysian palm oil and European rapeseed futures both climbed to record highs during the week, while Chicago Board of Trade soyoil futures were also stronger.
Biodiesel still accounts for only a small amount of the demand for Canada’s canola, but announcements of a number of new crushing facilities over the past year highlight the fact that canola’s role in the energy market is on the upswing.
Where those outside markets go remains to be seen. However, the downside appears to be limited for the time being. In addition, canola’s own supply tightness should keep it trading at a premium.
Whether that means canola futures stay above $900 per tonne also remains to be seen, as current prices are already at a level that should be seriously rationing demand. Crush margins have been at negative levels for some time already, which means the seed costs more than the resulting product values — at least at the current face values.
Looking to the soybean and corn markets in the U.S., harvests there are moving along ahead of average, but over half of the crops were still in the fields in early October. Rising production estimates could be a limiting factor in the short term, while that outside strength in world energy markets should be supportive.
Corn and bean traders will also have their eye on South American growing conditions over the next few months, as farmers there are in the early stages of seeding their next crops.