Canada Markets

Agriculture and Agri-Food Canada's February Canada: Outlook for Principal Field Crops report supply and demand tables point to the largest month-over-month revision to ending stocks of canola seen for all commodities covered, although was not unexpected. Export demand was hiked 500,000 metric tons to 10 million metric tons, crush was increased by 100,000 mt to 9 mmt and the feed, waste and dockage figure was increased by 300,000 mt to 388,000 mt, with all combined resulting in a 900,000 mt cut in ending stocks to 1.1 mmt, the lowest in four years.

Demand continues to run ahead of last year's pace. As of Feb. 15, 5.056 mmt had been crushed in Canada (4.456 mmt), while as of week 28 or Feb. 12, 5.7632 mmt had been exported (5.276), with last year's volumes in brackets. In addition, the latest available data shows a further 51,739 mt of unlicensed exports as of November, up from the 21,901 mt shipped in the same period of the previous year.

Upon release of the Dec. 31 stocks report by Statistics Canada, it was noted that the January-through-July disappearance of canola in the 2015/16 crop year was 11.436 mmt based on Statistics Canada stocks data, while it was mentioned that this pace could lead to a sub-one million metric ton carryout in 2016/17, given current estimates of supply. Estimated Dec. 31 2016 stocks of 12.159 mmt less the 11.436 mmt disappearance from 2015/16 would lead to a 723,000 mt carryout.

Making current crop year projections more complex, 1) the current pace of demand is ahead of the 2015/16 level and 2) unharvested acres in the western Prairies mean that estimates of 2016/17 supply estimates may be challenged.

The last time that Canada's canola ending stocks fell below 1 million metric tons was in 2012/13 when stocks were estimated at 588,000 mt as of July 31. During that crop year, stocks as a percentage of use were calculated at a low 4.2%, while weekly highs reached on the continuous active chart from February through June reached the $649 through $651/mt range. Given the current 1.1 mmt carryout estimated by the government for 2016/17, stocks as a percent of use would be 5.6%, only slightly higher than shown for the 2012/13 level that led to much higher prices.

As seen on the attached chart, the March/May futures spread has strengthened or narrowed $3/mt since Feb. 10, a positive signal of front-end commercial demand. While the May/July spread has weakened this week, at minus $3.40/mt it reflects roughly 30% of full carry and signals a bullish view of fundamentals given the actions of commercial traders. While there is increased talk of the need for rationing seen in daily Dow Jones reports, statistics have yet to signal this happening.

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DTN 360 Poll

The latest USDA oilseed forecasts point to canola meal imports in China skyrocketing, although imports of canola/rapeseed is lagging. Would you rather see the export of products (oil/meal) than bulk seed? You can share your thoughts on this week's poll that is found at the lower right side of your DTN Home-Page.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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