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Canola Disappearance Points to Potential Record

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    Canola Disappearance Points to Potential Record

    Cliff Jamieson DTN Canadian Grains Analyst
    Thursday 12/24/15
    "Canola Disappearance Points to Potential Record
    Agriculture and Agri-Food Canada's December supply and demand estimates, found in the monthly Canada: Outlook for Principal Field Crops report, included a sharp increase in 2015/16 canola demand. This was in response to the Statistics Canada surprising production increase of 2.9 million metric tons, to 17.2 mmt earlier this month.


    The green bars represent the weekly combination of Canada's canola exports and domestic crush, while the blue line represents the amount needed each week to stay on track to reach the prevailing AAFC targets, as measured against the primary vertical axis. The black line is the steady pace needed to reach the current demand target, while the red line indicates the actual cumulative disappearance, both measured on the secondary vertical axis. (DTN graphic by Nick Scalise)
    This month's projections include an increase of 1.5 mmt of exports from the November estimates, to 9.5 mmt. This would represent a fresh record, above last year's 9.154 mmt and 14.9% above the five-year average. Domestic crush was increased by 800,000 metric tons to 8.2 mmt, well-above last year's 7.357 mmt and 19.3% above the five-year average.

    This leap to a total demand volume of 17.7 mmt is expected to result in ending stocks of 1.750 mmt as of July 31, up 650,000 mt from last month's estimate but down 24.6% from the estimated 2.322 mmt carried out of 2014/15.

    The attached chart shows cumulative demand is currently nearly on track to reach these inflated demand estimates, as of the most recent data (Dec. 13 for exports and Dec. 16 for crush). This is indicated by the red line (actual disappearance) trending along with the diagonal black line, which represents the steady pace needed to reach the 17.7 mmt demand figure.

    Even though the December data suggests an increasingly bearish outlook for the crop, the March contract has reached its highest level in 19 weeks this week with a high of $493.20/mt and may also close near or even possibly at the highest level seen in the past 19 weeks. This comes just ahead of the crop's period of seasonal strength which has seen the nearby contract move higher from the second week in January until late May/early June, as has taken place on average over the past five years.

    Futures spreads have also narrowed this month. While the nearby Jan/March spread continues to reflect a bearish view of fundamentals, the March/May has narrowed from an $8.40 carry to a $5.30 carry this month at the point of writing, reflecting a neutral view of fundamentals. The May/July has narrowed from a carry of $6.20 to a weak carry of $2.30/mt, which could be viewed as a bullish view of fundamentals."
    Cliff Jamieson can be reached at cliff.jamieson@dtn.com

    Follow Cliff Jamieson on Twitter @CliffJamieson

    (ES)

    © Copyright 2015 DTN/The Progressive Farmer. All rights reserved.

    #2
    Heating canola motivates farmers to sell canola at 7.25 US/bu leading to record movement should be how the headline reads. At least the carryover should be low heading in 16 crop.

    Comment


      #3
      All fall when I couldn't combine canola since it was all 15% and up, I wondered how my neighbors were doing it. I see now, drove by 3 bins with doors and lids open, and a wall of heated canola inside each yesterday. The few bins I have which aren't aerated need to be turned constantly. Even 6" deep in a truck or bin it will heat. I can believe that there is enough heated or potentially heating canola to affect the market this year.

      Comment


        #4
        Albertafarmer5 I once combined some real late flax and kochia mix for a neighbour. He then gave me the 100 bu to feed to our cows.

        It was about a foot to foot and a half deep in the truck and about three times a day I would climb in and turn it by hand. After a couple weeks of this I dumped it in a hole and burned it.

        I don't have any experience with dryers but I think that is the only option.

        On another note I had a bin of durum that wasn't cooling and was keeping the snow thinner on the roof so I pulled a load out. It was starting to form a crust but hadn't heated. I hauled that load to town and it tested 13.6.

        So watch your bins.

        Comment


          #5
          they have to pretend it's disappearing , cause it (17 mmt) was never there to start with it , it's just a marketing ploy , wake up

          Comment


            #6
            I dont know how you guys can spend $500,000 on a combine but not $30,000 on a dryer.

            Comment


              #7
              You're awesome hedgehog! So true.

              Comment


                #8
                Not many have spent 500000 on a combine around here and even fewer have put canola through a dryer successfully. Canola tends to mislead on the actual moisture content.

                Comment


                  #9
                  Very impressive canola demand this fall, but will it hold through the entire crop year?

                  Global commodity prices are now well below those seen during the coined Great Recession of 2009 and will impact the entire ag sector.

                  In our view, Ag Canada carryout data remains 'too low' even despite their recent sharp hike.

                  Global economics will have their say in this one as central bank policy may lose impact and falter in 2016.

                  Comment


                    #10
                    Errol, your comments indicate we should price canola sooner rather later.
                    What about Canadian dollar value?
                    Only a few larger farms and more sophisticated sellers may be willing to get involved with currency hedging.
                    Any advice for us?

                    Comment


                      #11
                      Hopalong . . . the U.S. economy is in for a rough ride in 2016. If the U.S. heads for recession, QE4 may be launched. The Fed may have to cut rates again after all-the-chest-thumping.

                      IMO, the U.S. dollar is now plateauing. Dallas Fed manufacturing data just released is now worse than 2009. Something has to give . . . and that something may be the U.S. dollar sometime in the 1st quarter.

                      This could have a domino impact on global markets from a modest recovery in crude oil, to Cdn dollar to the Euro to gold.

                      The spot Cdn dollar is quite oversold (IMO). A rebound would impact canola export demand. Also, China buys in spurts. They buy, buy, then stop, stop.
                      Canola is no exception. That is one reason why our carryout numbers are quite a bit higher the gov't projections.

                      Should China's stock markets go for another tumble, canola export demand will be impacted. Also, the massive fallout in global commodities has to be respected as an influence on demand.

                      It just not all roses for canola demand given the uncertainty in global economies. At some point, canola will break out of this comatose trading range.

                      Comment


                        #12
                        But yet canola is pushing resistance levels and looking to take the next leg higher

                        Comment


                          #13
                          Its definitely going higher, sold a lot of it.

                          Comment


                            #14
                            ajl, canola gets dried here every year ,never saw a problem ? what have you saw?

                            Comment


                              #15
                              Hedgehog, good observation.

                              Comment

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