Tight Canola Supply an Exception in a World With Record Supplies

canola in bloomWhile world grain supplies are growing rapidly after producing enormous global corn, soybean and wheat crops this year, Canada stands out with domestic stocks dropping after the bumper crop of 2013 to levels that are closer to average.

“We’re seeing our stock levels forecast to drop now to fairly typical levels by the end of this crop year,” said Bruce Burnett, weather and crop specialist with CWB Market Research, speaking at the Cereals North America outlook conference in Winnipeg last week (see video below.) “We certainly are an exception, and that should help support prices a bit.”

Canola, in particular, is bucking the global oilseed stocks-to-use trend, with supplies potentially becoming tight by the end of the crop year. Burnett said he believes Statistics Canada’s most-recent canola production estimate of 14.1 million tonnes is too low, but factoring in production of just under 14.9 million tonnes, CWB Market Research is still projecting a tight canola carryout of 911,000 tonnes.

“We’re thinking that (StatsCan) number is going to increase in December when they release their report, but even with that, we probably will drop our ending stocks for canola below a million tonnes. If we see stronger than anticipated export demand in the second half of the year, then we could even get that a little tighter,” he explained.

Canola and global soybean stocks heading in opposite directions should translate into a stronger basis offering from local buyers.

“The basis levels for canola should probably stay quite strong. They might weaken off if we have some  transportation difficulties, but they should get to fairly strong levels by the time we hit spring,” he noted. “Basically, from a marketing perspective, take a look at futures values out in the spring months — they’re starting to represent some pretty good values for locking in the futures component, — and then expect some basis improvement as we get into the delivery period in spring.”

The recent explosion at the Louis Dreyfus crushing plant at Yorkton could soften demand for farmers on the eastern side of the prairies, but Burnett said he doesn’t expect it will have a major impact.

“Assuming (the Dreyfus plant) will be able to resume in a reasonable amount of time, basically all this will do is shift some crush demand from immediately nearby into deferred months,” he said. “Overall, crush demand across Western Canada has increased here, so that should lead to higher crush numbers year-on-year.”

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