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Bulls & Bears
Each week we will look at a commodity to see what the bullish and bearish factors are in the market.
04/16/2010 - This week we look at canola.
Bulish Factors
The ICE (formerly the Winnipeg Commodity Exchange) Canadian board canola crush margin has been increasing lately. The crush margin is an indication of how profitable it is for canola crushers to crush canola. It is currently sitting at $112.68 per tonne versus $105.68 last month.
Agriculture and Agri-Food Canada (AAFC) raised their 2009-10 crop year canola export estimate from 6.5 million back in January to 7 million tonnes in their latest report. AAFC also raised their 2010-11 export estimate from January’s 6.3 million tonnes to 6.5 million tonnes.
Despite forecasting more canola acres this year as compared to last year, AAFC thinks that Canadian canola production will be about 225,000 tonnes lower in 2010-11 than it was in 2009-10.
The Chinese National Grains and Oilseeds Information Centre thinks that this year’s Chinese rapeseed crop maybe down 3.6% (about 500,000 tonnes) from last year’s levels due to a severe drought in South West China.
UkroAgro Consult says that ice in February and March caused significant damage to the Ukrainian rapeseed crops. They estimate that between 18 - 40% of that country’s rapeseed crop will need re-seeding. The company feels that about 350,000 hectares out of the 1.42 million acres of rapeseed planted was lost. The Ukrainian Ministry of Agriculture is pegging the loss at 28% of the planted rapeseed acres.
Trade sources say that Ukrainian rapeseed exports to Europe could be hampered by new European Union sustainability standards. About 80% of the Ukraine’s rapeseed exports go to Europe.
Coceral is forecasting European rapeseed production will drop 2.6% this year (about 550,000 tonnes) from last year’s levels. Oil World is predicting a 500,000 tonne drop. Oil World sees European rapeseed crushing rising 600,000 tonnes over last year’s levels.
Robabank sees Aussie canola production as being marginally down this year as compared to last year.
Australian Crop Forecasters predict that the lower sunflower production in Argentina, Russia and the Ukraine will help rapeseed prices.
Thomas Meilke of Oil World says that the 2010-11 vegetable oil supply will not meet the demand requirements. Meilke also predicts that crude oil prices will be in the $80 - $90 per barrel range and this will support biofuel markets. Anne Frick of Prudential Bache expects Chicago July soyoil futures will hit 45.70 cents per pound in May. The Chicago soyoil futures are current trading at about 40.5 cents per pound.
Bearish Factors
UkrAgro Consult is putting Russian rapeseed acres at 865,000 hectares this year. That is three times as many acres as was planted in 2005.
The Australian Crop Forecasters are predicting that Aussie canola production will be up 5% this year. Robank says that “given South America’s strong harvest of soybeans it is difficult to imagine a sustainable rally in Australian rapeseed prices until at least mid-2011”.
Gleadell reports that some European crushers are crushing soybeans instead of rapeseed due to reduced margins for crushing rapeseed.
Informa sees world rapeseed plantings rising from 30.7 million hectares last year to 32.1 million hectares this year. They see the Chinese putting in 500,000 more hectares of rapseseed this year. Informa sees this as translating into world rapeseed production going from 59.9 million tonnes last year to 60.6 million tonnes this year. They are forecasting Canadian canola production will rise from 11.8 million tonnes last year to 12.7 million tonnes this year. They feel that the Chinese will harvest about 800,000 more tonnes of rapeseed this year than they did last year.
Anne Frick expects “soybean prices to stage a significant sell off into June.”
The United States Department of Agriculture (USDA) US planting intentions report shows that American farmers are planning to plant 78.1 million acres of soybeans this year as compared to 77.5 million acres last year. The USDA report pointed out that US farmers intend to plant 1.23 million acres of canola this year. That is 49% more canola acres this year as compared to last year. Canola acres in North Dakota are pegged at 1.1 million acres. That is up 45% over last year.
Another Canadian canola crushing plant was put on the US Food and Drug Administration’s watch list as canola meal from that plant was found to have salmonella in it.
Saskatchewan Agriculture predicts that Saskatchewan canola acres will be up between 5 and 10% this year. Jerry Klassen sees Canadian canola acres rising 8% this year. Aussie Crop Forecasters think Canadian canola acres will 3.7% higher this year than last. They see the acres going to a record 16.8 million acres. AAFC is forecasting a 16.5 million acres of canola will be going into the ground in Canada.
ICE canola crush margins have been sliding over the long term. In February they were sitting at $126.89 per tonne and a year ago they were at $145.42.
Oil World is predicting that Brazil will produce 66 million tonnes of soybeans this year. The USDA is forecasting a 67.5 million tonne Brazilian soybean crop. That would be a new record and is 500,000 tonnes higher than their March estimate. CONAB is putting the soybean crop at 67.39 million tonnes (which is down from their last estimate of 67.57 million tonnes). IBGE sees Brazilian soybeans coming at 67.3 million tonnes. Oil World is putting the Argentine soybean production at 53.3 million tonnes. That is up 1.3 million tonnes from last month’s forecast. The Buenos Aires Grain Exchange is forecasting a 54.5 million tonne Argentine soybean crop.
Thomas Meilke sees that in the second half of the 2010-11 marketing year “too much meal due to increased crushing capacity will put pressure on the prices of animal feed”.
Factors to Watch
China and Argentina are having a trade dispute which has lead to restrictions being placed on Argentine soybean oil entering China. Argentina is China’s largest soyoil supplier. China buys 54% of the world’s soybeans and 25% of the world’s soyoil. If the trade dispute is not resolved this could lead to more Chinese imports of canola oil and/or US soybean oil. That could be very positive for canola prices.
Jonathan Lane of the UK trading firm Gleadell feels that the European rapeseed supply and demand equation is balanced. The means “that is not an issue if the Europeans get average yields but they need to get average yields”. If there are average yields and if there are no major currency moves then Lane feels that prices will stay at current levels. If there are problems then prices will go up.
Stats Canada will be releasing their Canadian planting intentions report on April 26.
Most of the dry areas in the Canadian canola belt have enough moisture to get canola off to a good start.
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PREPARED BY THE NORTH EAST TERMINAL MARKETING TEAM
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