World soybean supplies are bearish on canola, for now

Traders get a sense that canola supplies may tighten

As Western Canada sits blanketed in snow, canola prices are being driven by oilseed markets elsewhere — a short-term bearish factor.

Looking to this year’s upcoming production, supply-and-demand outlooks have caused divergence within the market.

The U.S. Department of Agriculture (USDA) on March 9 released its world agricultural supply-and-demand estimates (WASDE), bumping up soybean ending stocks and reflecting Brazil’s record production.

U.S. soybean stocks are projected at 435 million bushels, up 15 million from last month, as Brazil’s bumper crop cuts into U.S. export demand.

The report raised Brazil’s soybean production by four million tonnes to a record 108 million tonnes.

Spillover pressure from that data caused canola to decline about $10 in the week ending March 10.

In the bigger picture, canola has a couple of independent factors that could sway values.

Near-term May and July contracts have about a $20/tonne premium over the November contract, which indicates traders are concerned supplies of the commodity will be tight into the spring.

Data indicates the government thinks that’s possible too. The latest Agriculture and Agri-Food Canada ending stocks estimates for 2016-17 are at about 1.1 million tonnes, compared with two million the year prior.

That number includes canola currently sitting in fields in uncertain condition. The expectation for tight supplies is keeping nearby contracts supported.

The November and January contracts sit in the low $500/tonne range, as some market watchers expect ample supplies of canola to be seeded this year.

Saskatchewan Agriculture’s Crop Planning Guide for 2017 names canola as one of the more profitable crops to grow this year, alongside lentils and durum, which could spur increased seeding.

At current prices, canola is profitable, and demand for other oilseeds remains strong, which is likely to keep canola underpinned into the spring and summer.

Agriculture and Agri-Food Canada expects canola seeding to increase by three per cent in the 2017-18 crop year, keeping pressure on deferred contracts.

That seeding, and the resulting production, rests on how soon farmers are able to get into fields.

Soybeans

The Chicago Board of Trade (CBOT) soybean May contract lost more than 30 U.S. cents per bushel in the week ending March 10, feeling pressure from USDA data.

Lacklustre exports added to the market’s losses on the week. Going forward, traders are watching South America’s weather for indications on where to move next.

Brazil’s record production is moving into the global market, while Argentina’s short-term forecast shows dry conditions, which will push crops into the final stage of maturity.

Wheat

The CBOT May wheat contract lost 13 U.S. cents per bushel in the week ending March 10, pressured by USDA data reflecting larger production.

Estimated global production increased 2.8 million tonnes to 751.1 million, due to bigger crops from Argentina and Australia, USDA said.

While that report had a bearish effect on the grain, prices are expected to move in a sideways trading range as winter crops keep the market underpinned.

Traders are watching weather reports for market indicators.

Corn

The CBOT May corn contract lost more than 16 U.S. cents per bushel in the week ending March 10, declining alongside soybeans and wheat with USDA data.

Global coarse grain production for 2016-17 was revised 12.7 million tonnes higher to 1,341.7 million, according to USDA data.

Investors will be watching Brazilian weather for indication on where to move next, though the market is also expected to be linked to soybeans’ movement in the near term, which could have a bearish effect on values.

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