After attempting to show strength for most of March and early April, the canola futures market took some hits, with the bias shifting lower once again.
Old/new crop spread: Tightening stocks and the need to secure deliveries ahead of new crop availability often see old crop canola contracts trade at a premium to new crop futures at this time of year. However, what little premium there was for July canola over the November contract disappeared in February, and the spread chart indicates end users see little need to ration old crop demand in 2024.
July canola was trading at a discount of about $15 per tonne relative to the new crop November contract in mid-April. That compares with this time a year ago when July was trading at about $30 per tonne above the November 2023 futures. In recent years, a July/November spread of more than $100 per tonne has been common.
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Exports: What’s different in 2024? Canadian 2023-24 canola production of about 18.3 million tonnes was down slightly the 18.7 million tonnes grown the previous year, but total available supplies were comparable. Domestic disappearance through 37 weeks of the marketing year, at 7.9 million tonnes, is up by about 500,000 tonnes from the same point in the previous year.
However, the glaring difference in the 2023-24 crop year has been export movement. Canada has only exported 4.4 million tonnes of canola to date, according to Canadian Grain Commission data. That compares with 6.4 million tonnes at the same point a year ago. The demand from global buyers just isn’t there.
In its March report, Agriculture and Agri-Food Canada forecast Canadian canola exports in 2023-24 at seven million tonnes. While that would be down from the 7.9 million tonnes that moved in 2022-23, it seems unlikely to hit even six million at the current pace. As a result, the carryout could be well above two million tonnes, adding to the bearish sentiment on old crop canola.
New crop: Weather permitting, seeding will be in full swing within weeks and some attention in the markets will shift from the bearishness of the old crop to the uncertain future of the new crop. Recent moisture has alleviated dryness concerns in parts of the Prairies, but more timely rains will be needed through the growing season.
Canadian dollar: Currency will be something else to watch, given the possibility of diverging interest rate policies in Canada and the United States. The loonie recently fell to its softest level in five months relative to its U.S. counterpart. While not a cure-all, that softer currency should generate some much-needed export interest.
