The Canola Council of Canada's March 21 media release highlights growing concerns facing the Canadian canola industry, indicating that Chinese buyers were not buying Canadian canola from any supplier, while "technical discussions are unlikely to lead to an immediate resolution." While Canada's industry has yet to receive official notice from diplomats in China of a ban, actions taken by China's importers have resulted in an outright ban on new business.
The attached chart shows the trend in forecasts for 2018-19 Canadian canola exports, starting at 12 million metric tons, the first forecast released by Agriculture and Agri-Food Canada in January 2018, to the March 2019 low of 9.8 mmt. The most recent forecast represents the second consecutive monthly reduction in this forecast, while 1 mmt lower than forecast in February. This would reflect the lowest annual volume exported in four years, or since 9.163 mmt was shipped in the 2014-15 crop year.
Context for this forecast is shown by the red bar, which shows the actual 10.726 mmt shipped in 2017-18, while the green bar on the right highlights the current forecast for 2019-20, with exports forecast to recover to 10.5 mmt.
The black line with markers represents the forecast for ending stocks, with the March forecast boosting stocks by 1 mmt to a record 3.5 mmt, while are forecast to fall only by a modest 200,000 mt in 2019-20, despite a downward revision in seeded acres this month.
The lower revision in exports was expected given concerns expressed in this space over several weeks. Given the uncertainty facing the industry, one can only question if the current forecast represents the actual flow of grain.
Over the past five years, licensed exports of canola reported by the Canadian Grain Commission as of week 33 represented an average of 61.1% of total crop year exports. Projecting this pace forward, crop year exports would reach 9.875 mmt, in line with AAFC's March forecast.
The concern is that seed is not moving at an average pace. Over the past 10 weeks, average weekly movement through licensed facilities (week 24 through week 33) is the lowest seen over this period in four years at 163,250 mt. The average weekly shipments over the past four weeks is even lower at 132,975 mt. Should this 10-week average volume be extended over the remaining 19 shipping weeks, total licensed exports would total 9.1 mmt. In addition, over the past five years, unlicensed exports have averaged just under 300,000 mt, a volume that would bring total exports to 9.4 mmt, still short of the current forecast.
Despite the bearish news, one positive observation in this week's trade is in new crop futures spreads. Despite a record carry-out forecast for 2018-19, along with only a modest reduction forecast for seeded acres for 2019 as well as for production and carryout, the new-crop Nov/Jan spread weakened this week to minus $6.70/mt (Jan 2020 trading over November 2019), which remains a neutral 55.2% of full carry, or a neutral view of market fundamentals on the part of commercial traders, who continue to show caution. This bears watching.
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