Canola Market Takes Off Thanks to Fundamentals
Canola futures have been on the rise for weeks with several fundamental factors supporting the market. This is a great opportunity for producers to get caught up to FBN’s current recommendation levels for canola (both 2020 and 2021). This week we wanted to highlight the price opportunities as well as reasons why we are seeing futures trading at two-year highs.
Canada’s situation is tight
We discussed the stocks situation in last week’s report but as a reminder, Canada’s canola stocks tightened in 2019/20 and are forecast to further tighten for 2020/21. Weekly exports remain solid and crush volumes are not expected to decline much. Plus, the recent cold weather in Canada exposed parts of the crop to frost/freezing temps, which got the market’s attention on Tuesday. While futures have been rising, basis levels have been declining. But we are still seeing much higher cash prices this year versus last year.
Global supplies are tight and prices are rising
Not only is Canada facing tightening stocks two years in a row but Ukraine and the EU both have small crops. That means strong demand for the EU and less exportable surplus for competitor Ukraine. Canola FOB prices in the Black Sea have risen substantially the past month and also have risen at a higher pace than prices in Australia and Canada.
China is buying light volumes of canola, big volumes of soybeans
But many in the market are wondering if China is buying larger volumes now or if the importer will be in the coming months. Ukraine has not historically shipped canola seed to China, but the two countries have been working on expanding at least canola meal trade. Australia historically has not shipped much canola to China either. Recall that China is in trade wars with both Canada and Australia. If China were buying additional canola, it could be from Ukraine. China continues to secure notable soybean volumes with strong domestic demand as its hog herd continues to recover. We lean towards China having a larger canola import this year than in 2019/20. And canola is expected to benefit from the stronger oilseed demand.
FBN's take on what this means for the farmer
The recent runup in futures has provided a great opportunity for producers to get caught up to FBN’s current recommendations. Futures are trading at multiyear highs. We see some moderate weakness from current levels, but overall this market is expected to remain supported in the coming months. This time next year could be a different story, especially if the EU has a production rebound as expected.
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