After three days of losses, canola futures on ICE Futures regained some lost ground after a flurry of reports were issued by the U.S. Department of Agriculture on Jan. 12.
Canola entered the first full week of trading in 2023 on a high note, having made gains on Jan. 6, but with the Canadian oilseed rangebound, something had to give. Prices for the week of Jan. 9 pulled back. Then there were upticks the next day, only to evaporate by the end of the session, and the same thing happened on Jan. 11.
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Ahead of USDA issuing 11 reports that Thursday, canola was off to a cautious start. The question was, what would happen when USDA released its monthly supply and demand estimates, along with its crop production reports, quarterly grain stocks and weekly export sales data?
As is often the case, where soyoil goes, canola is bound to follow. It might take a little while but sometimes the reaction is immediate, as was the case Jan. 12. The March soyoil contract increased by more than a penny a pound, which saw March canola tack on $10.60 per tonne at $842.40.
Fueling that upward movement was USDA cutting 70 million bushels from its call on 2022-23 soybean production of 4.28 billion bushels. Added to that, the department chopped 4.5 per cent off the carryover for soybeans, at 210 million bushels.
The grain stocks as of Dec. 1 pegged combined commercial and on-farm supplies of U.S. soybeans at 3.02 billion bushels for a drop of four per cent from the previous year.
And despite a hefty record crop to be gleaned off Brazil’s soybean fields, its production took a little bit of a hit because of ongoing dryness in the south. USDA said Brazil will produce 153 million tonnes of soybeans in 2022-23, while that country’s equivalent agency, CONAB, said the harvest would be 152.7 million tonnes. Both moved away from earlier expectations of approximately 155 million tonnes.
The sad story came out of Argentina, where a severe drought has taken its toll. The Rosario Grain Exchange hacked 24.5 per cent off of its production call, now at 37 million tonnes of soybeans.
The Buenos Aires Grain Exchange indicated it would soon cut its forecast. USDA, perhaps a little slow to react to the drought, was optimistic at 45.5 million tonnes.
Less soybeans in the U.S. and production issues in South America proved supportive of soybeans in Chicago. The spillover led canola to move away from the low end of its range.
Where canola goes from here is a bit of a question. Likely, the oilseed will bounce back and forth between $800 and $900 per tonne. Should those USDA reports combine with fresh bullish news, canola could climb higher. Just the same, bearish elements could seep in to push canola under $800.
