July Canola Crush Falls Likely Tied to Short Supplies
Canola crush for July fell to 806,900 tonnes — the lowest volume since last September at 767,700 tonnes but near the levels hit in February. The monthly total was the lowest volume crushed for July since July 2017 and is the first time in years that crush fell from June to July. Despite the decline, cumulative crush for the crop year came in at 10.4 percent higher versus last year and is a record at 10.1 million tonnes. The previous record was 9.3 million tonnes, hit in 2018/19.
Why did monthly crush atypically decline?
FBN’s hypothesis is that the tightening stocks situation for canola was the main driver of the lower crush. Daily crush volumes were the lowest level reported in months. Plants may have also taken the opportunity to conduct maintenance ahead of new-crop supplies knowing the constrained stocks situation.
Another key item to take note of is that the level of canola seed stocks shot higher. FBN interprets this as the plants trying to secure as much seed as possible knowing that domestic stocks are tight. Cash bids and futures have been strong for a while with aggressive buying from crushing facilities one of the reasons that we have seen support in the market overall for the past several weeks. While the stocks level is just one day in time, that volume is the highest level for month-end supplies recorded since February.
What about August?
August crush could be light as well given that supplies are tight before harvest sinks in. August stocks typically are light versus other months and historically, we see crush declines in August versus July. That means the industry could get off to a light start for 2020/21. But, FBN is not confident that we are in for a year of sharp crush declines versus 2019/20. We see crush holding around 10 million tonnes for the 2020/21 crop year.
FBN's take on what this means for the farmer
The unusual decline in crush does not concern FBN from a demand standpoint. Rather, we lean towards light supplies being a key reason as to why crush fell. The domestic canola situation is tight and is expected to be tight again this time next year. We expect pricing opportunities to appear later in the crop year.
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