Much has been said about the potential for canola exports to the European Union this week, welcome news in light of the ongoing tensions faced in relations with China. According to Strategie Grains, Europe's imports to drive the biodiesel sector could reach a record 5.8 million metric tons, up from 4.2 mmt imported in 2018-19.
Reports of Canada's potential exports range from 1.2 mmt all the way up to 3 mmt. One media report indicated that 1 mmt of new crop was booked in the month of July alone. While Canada may prove a ready source of supply, it may also be viewed as inexpensive.
While futures have traded sideways in range-bound fashion during the past eight weeks, cash prices have also remained steady, with the bid reported by Saskatchewan Agriculture at $417.80/mt as of Aug. 21, while has ranged within a narrow $9.19 range over an eight-week period.
If we look at the attached chart, the trend in the spread between the continuous active rapeseed price and continuous active canola price has been strengthening since April 2018, while reaching a recent high of $118.03/mt, as of the week of April 29, remaining in the vicinity of $108/mt at the end of this week. The recent high was the widest spread seen since April 2014.
During the past five years, this spread has averaged $57.94/mt, ranging from $39.59/mt in 2017-18 to $83.28/mt in 2018-19, with statistics calculated by DTN's ProphetX. It is interesting to note that this spread is calculated at $99.59 during the last six months of Canada's 2018-19 crop year.
While canola futures will continue to feel the weight of the soybean market given the growing trade war between the U.S. and China, as well as Canada's own trade issues faced with China, this chart would signal that growing demand from Europe is supported by increasing purchasing power when valued in Canadian dollars. Time will tell who stands to benefit most from this.
Cliff Jamieson can be reached at firstname.lastname@example.org
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