The November canola contract has reached its highest level in almost three weeks this week, although its move above $500/metric ton on Tuesday, the first time in 14 days, was short-lived. Pressure returned to the soy complex as trade tensions between China and the United States heat up.
DTN's ICE Canada commentary points to a weak export picture as buyers sit on their hands and wait for new-crop supplies and pricing. The average prairie basis, based on accessible internet bids, weakened from roughly $24 under, posted for July delivery, to $34/mt under, for August delivery, suggesting that buyers remain confident with no sense of urgency.
The attached graphic points to prospective 2018/19 carryout estimates given a number of combinations of export demand and yields. Export demand varies by 200,000 mt increments across the horizontal axis, while Canada's average yield varies by .5 bushels per acre over the vertical axis.
A number of assumptions built into the model include:
-- Agri-Food Canada and Statistics Canada's 2017/18 ending stocks of 2.7 million metric tons;
-- Statistics Canada's seeded acre estimate of 22.740 million acres, along with AAFC's harvested acre estimate of 99.8%.;
-- AAFC's domestic crush of 9.2 mmt;
-- AAFC's total domestic use of 9.385 mmt;
-- AAFC's estimated imports of 100,000 mt.
The data appearing in the two grey boxes reflects the most recent AAFC estimates that utilizes long-term average yields and a recovery in demand to result in ending stocks of 2.250 mmt, a 450,000 mt or 16.7% decline from estimates for the 2017/18 crop year.
The brown shaded area of the graphic represents combinations of yield and export demand that will lead to a year-over year decrease in ending stocks. For example, given the five-year average yield of 39.5 bpa, which happens to be AAFC's most recent estimate, along with the number of assumptions made, export demand will need to increase by more than 200,000 mt from the current 10.8 mmt estimate for 2017/18 in order to achieve a year-over-year contraction in stocks.
AAFC's most current estimates points to 2018/19 crop year exports reaching 11.5 mmt, while the USDA is close at 11.6 mmt. Given the latter of the two estimates, an average yield at-or-above 41 bpa, which happens to be the average yield estimated by Statistics Canada for 2017, would point to a potential year-over-year increase in stocks.
In a similar study of U.S. corn final yields and exports, DTN Contributing Analyst Joel Karlin points to these two factors being the greatest unknowns. With canola, there is plenty of time for a significant surprise in stocks and/or seeded acres that could also dramatically alter the results of this study.
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