Canada Markets

Analysts at Agriculture and Agri-Food Canada (AAFC) must have decided the final production estimates from Statistics Canada due out Dec. 5 are close enough that they may as well leave their updates as status quo for November. The only minor changes were increased exports of wheat except durum of 200,000 metric ton (mt) and durum of 100,000 mt. Ending stocks of both were reduced by their respective amounts. Details of all other grains and oilseeds were left unchanged from the October report. Given the widely expected cuts coming to canola production and the unsustainable pace of both exports and domestic use, the status quo was a bit of a surprise. That may have added pressure short term to canola prices but doubtful.

Instead of diving into the details of changes (because there are none), it seems appropriate to provide a progress report on our previous outlook found at https://www.dtnpf.com/….

Future changes to both supply and demand assumptions should be leaning more bullish all the time given the unsustainable pace of use. On the supply side, there is a general consensus that final production estimates will fall from the Sept. 16 Statistics Canada model-based prediction of 18.98 million metric ton (mmt) -- it's just a matter of how far that's up for debate. Looking at provincial estimates and considering reports of disappointing yields due to drought and disease, 18 mmt may be difficult to achieve. Statistics Canada will have their final say on Dec. 5.

The demand side is even more intriguing with strong exports, driven initially by Chinese purchases, competing with record crush thanks to increased capacity developed to help feed the renewable fuel expansion. Exports to the end of week 14 have already hit 3.365 mmt compared to 1.650 mmt by that time last year. The current AAFC projection is for exports to total 7.5 mmt, up from 6.683 mmt last year. Leaving only 4.135 mmt for the last 38 weeks, weekly exports only need to average 108,800 mt to reach the estimate. The week 14 total was 264,500 mt following 204,100 mt in week 13. Still more intriguing than most shows currently on TV. Not to be outdone, cumulative domestic crush to the end of week 14 was 3.249 mmt vs 2.835 mmt last year.

There is nothing new on the "Chinese anti-dumping investigation into canola" front but it certainly does appear that it is inspiring increased business as they stock the shelves ahead of any potential trade disruption. In the first two months of the marketing year, China was the top destination by far -- taking just under 1.3 mmt. Interestingly enough, the United Arab Emirates (UAE) nudged out Mexico for third place, behind Japan in second. That could play a key role later if China does shut out Canadian canola as it is widely believed the UAE has acted as a back door into the country in the past.

The situation with soybean oil as covered in https://www.dtnpf.com/… should be monitored due to the impact on canola. U.S. export commitments a mere six weeks into the marketing year are now 616 million pounds compared to the current USDA projection of 600 million pounds for the year. As a point of interest -- the 25-year high mark was 3.359 billion pounds in 2009-10 followed closely behind by 2010-11 at 3.233.

Looking at the market participants themselves (through the CFTC's Disaggregated Commitments of Traders report), money managed funds are still net short almost 43,000 contracts or 860,000 mt as of Tuesday, Nov. 12. Their record net-long position was 70,000 contracts or 1.4 mmt set on Jan. 10, 2022. That suggests they could still be a good source of buying interest in the futures markets, should the outlook for canola continue to improve. They do, however, pose a risk should they reassert their bearish tendencies. Their record net-short position was 154,165 contracts or 3.083 mmt set on March 5, 2024.

From a technical perspective, the monthly chart (each bar representing the high/low/close of the month) left a very interesting divergence bottom formation with the rejection of new lows in September. In that case, the price put in a new reaction low, but the Relative Strength Index (RSI) did not. The RSI is simply a mathematical formula looking at the relationship between the high, low and close to highlight market internal strength or weakness. Especially on long-term charts, a divergence bottom (or top if that was the case) is worth respecting. The weekly chart has the same divergence bottom topped off with a key reversal from a new reaction low (during the week beginning Sept. 16). The next goal in this case is to close above the weekly 100-week moving average. The daily chart has turned decidedly bullish as measured by a number of different indicators. The January futures cleared the 100-day moving average, then rallied off it on a number of occasions on the recent pullback. With global vegetable oil markets retreating, it is still presenting as simply a bull market correction.

Bringing it all together, the unsustainable pace of exports and domestic use will need to be slowed -- normally by price rationing. Further strength following the nearly two-year slide in price would be reasonable to expect, especially in this case. Being patient and making incremental sales that reward rallies continues to appear to be an appropriate marketing strategy at this point.

With that, keep in mind I'm always happy to get feedback along with any suggestions for future blogs.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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