The News & What it Means – Why is Everyone Bullish About Canola?

By Dave Milne – August 15, 2017

 

The news:

Analysts are becoming increasingly bullish about canola for a variety of reasons.

– Western Producer, August 11, 2017

 

What it means:

Certainly, the dry weather in Western Canada and Australia is raising major concerns about 2017-18 production. But it’s important to remember the soybean market will play a role in price direction as well.

 

As Prairie producers already know, canola output in the world’s No. 1 production region will be negatively impacted this year by drought. A number of farmers in parts of Saskatchewan and Alberta who responded to a DePutter survey last month indicated well below average crops, with some yield estimates ranging from just 15 to 20 bu/acre.

 

Canola production prospects dimmed by weather

Not every field in Western Canada is a disaster, by any means. But there seems to be little chance this year’s average yield will come anywhere near last year’s 42.3 bu/acre record.

 

Sure, this year’s planted area, at 22.8 million acres, is well above a year earlier, but that likely won’t be enough to push production above the 2016 harvest of 18.42 million tonnes. It also bears noting that in 2016-17 Canadian canola disappearance (exports, crush, feed, seed) was over 20.5 million tonnes.

 

Meanwhile, Australia – the world’s second-largest exporter after Canada – is experiencing its own dry weather troubles. As noted in the Western Producer article, the Australian Oilseed Federation is projecting a crop of 3.1 million tonnes, down from 4.2 million last year.

 

Soybean output projected higher

Whether we like it or not, canola doesn’t always trade strictly according to its own fundamentals. The likelihood of smaller crops in Canada and Australia would seem to point to upward potential in canola prices but the bearish bomb dropped by the USDA last week may limit just how high the market eventually moves.

 

For those who missed it, the USDA projected the 2017 U.S. soybean yield and production well above trade expectations. Meanwhile, global soybean production was also revised higher from last month, with world soybean ending stocks for 2017-18 jumping to 97.78 million tonnes – way up from 93.53 million in July and even above last year’s 96.98 million.

 

It was a combination that sent the November soybean future to its lowest since late June. Although the losses were less severe, canola declined as well.

 

Weather still key

August weather will still play a major role in determining just how big – or how small – the U.S. soybean crop turns out to be. If the crop gets bigger, at least some of the drought-inspired heat in canola is bound to be cooled.

 

To keep up to date on the inevitable twists and turns in the soybean and canola markets as the 2017 growing season draws to a close, try out a trial subscription of our Market Advisory Service newsletter.

 

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