Latest supply and demand data from USDA and AAFC point to the stocks-to-use ratio for both domestic canola and global rapeseed/canola expected to fall for the fourth consecutive year in 2017/18. USDA's Sept. 12 Oilseeds: World Markets and Trade shows global stocks-to-use forecast at 6.9%, the third straight year of landing in single digits. This is seen by the trend in the blue line on the attached chart. If realized, this would be the smallest carryout relative to use seen since 2003/04.
Based on this week's AAFC supply and demand estimates, Canada's canola stocks-to-use ration would fall to 3.4%, which is the lowest seen on this chart (red line) and the lowest seen in available Statistics Canada data going back to 1996. While AAFC's supply and demand tables may soon prove dated given this week's model-based production estimates suggesting a much larger crop, demand too will rise given that current AAFC export demand estimates for 2017/18 are close to 1.1 million metric tons lower than realized in the 2016/17 crop year. Stocks relative to use could still be poised to fall even with a larger crop.
What is interesting is the limited impact on ICE Canada canola futures as stocks tighten both at home and abroad. Both domestic and global stocks-to-use ratios fell in 2014/15, 2015/16 and 2016/17, while the average Ice Canada futures price is seen rising in each of the past two crop years, but modestly. In 2015/16, the average futures price, as calculated with ProphetX using the continuous active chart, rose $24.24/mt to $478.56/mt. In the following crop year (2016/17), the average price rose a further $25.54/mt to $504.10/mt, as indicated by the grey bars on the chart. The yellow bar represents the 2017/18 year-to-date average (Aug. 1 through Sept. 19), which is calculated at $498.15/mt.
In 2011/12 and 2012/13, low single-digit stocks-to-use for Canadian canola led to an average $569.96/mt and $610.99/mt, respectively.
Canola's price potential could continue to face spillover pressure from the soybean market. Despite an ongoing barrage of U.S. sales announcements, the current U.S. soybean basis is the weakest seen in the past five years while the soybean forward curve reflects a bearish view of market fundamentals based on the market actions of commercial traders. This will remain a challenge.
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