A bullish report from the U.S. Department of Agriculture helped soybean futures at the Chicago Board of Trade recover off of 10-month lows during the second week of November — but the ICE canola market easily outpaced the soy complex to the upside, as a number of independent factors helped the Canadian oilseed hit fresh contract highs.
Soybean futures had been under some pressure in the run-up to USDA’s monthly report, released Nov. 9, as anecdotal harvest reports were pointing to better yields across the U.S. Midwest and an increase in ending stocks.
However, the government agency surprised traders by cutting its average yield projection for soybeans by half a bushel from an earlier estimate, to 51.5 bushels per acre. While ending stocks were still revised higher from the October estimate, the revision came in below expectations and the prospects of tighter soybean supplies triggered some buying interest.
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However, the U.S. soybean crop is still big overall, despite any minor adjustments, while South America is gearing up for large bean crops of its own.
Any strength in soybeans or soyoil is typically supportive for canola, but these days it seems canola is mostly charting its own path independent of the Chicago futures.
January canola climbed above $1,000 per tonne on Nov. 10, continuing an uptrend in place for the previous two months.
The rising futures have seen canola crush margins reported by ICE Futures widen to levels that look very unprofitable at first glance. However, those theoretical margins are based off of soymeal and soyoil prices. The returns canola crushers get for their oil and meal are not publicly available, but industry sources say the actual market for canola oil and meal is still profitable.
That means domestic crushers looking to keep their plants running in the face of a very tight year will need to pay up in order to secure supplies and to prevent those supplies from being diverted to the export market.
Canada’s canola crush is running only slightly behind the year-ago pace, according to Canadian Grain Commission data, with total domestic usage through the first 13 weeks of the crop year, at 2.385 million tonnes, down by only eight per cent.
Meanwhile, year-to-date canola exports of 1.556 million tonnes are only about half of what moved at the same time the previous year.
Speculators are holding a large net long position in canola, accounting for over a quarter of the total outright open interest in the market. That large position could easily turn into a bearish anchor if some outside force triggers a bout of long liquidation. What that trigger may be, however, remains to be seen — and fund traders appear content to keep adding to their profits as long as the trend remains pointed higher.
