Canada Markets

Given the importance of soybean oil to canola values, the break witnessed during the past three weeks and flooding in Malaysia and Indonesia pushing palm oil back towards life-of-contract highs -- it seemed appropriate to provide a short update on the ongoing, exceptional demand for soybean oil.

The weekly export sales report out Friday morning far exceeded expectations with net sales reported at 124,800 metric tons (mt) versus 30,000-50,000 mt estimated. India was again the top purchaser at 47,000 mt, with Algeria (16,500 mt) and China (13,000 mt) responsible for substantial totals themselves.

The reality that the market will have to deal with someday -- possibly starting Monday with the new month and a return from holidays -- is the amount that export commitments already exceed annual USDA projections. This is only eight weeks into the marketing year.

Total commitments (outstanding sales plus exports to date) stand at 396.8 million metric ton (mmt) or 873 million pounds. That compares to USDA's current annual projection of 600 million pounds. See the problem?

It doesn't make bears (that are willing to consider it) feel any better when there is little to no room in the ending stock estimates to allow for an increase in exports. At 1.536 billion pounds currently estimated by the USDA, many consider pipeline levels are already expected.

Given increased demand as outlined in the previous blog on the topic https://www.dtnpf.com/…, the only reasonable way of dealing with the situation will likely be to increase crush. With soybean crush normally driven by soybean meal, increased soybean oil prices may be required to accomplish that.

As a quick refresh, the 25-year high for soybean oil exports was 3.359 billion pounds set in 2009-10 followed closely behind by 2010-11 at 3.233 billion pounds. Clearly there is no room to return to anything even close, but it does highlight the implications export potential could have.

Reviewing the technical, monthly and weekly continuation charts contain similar clues: A bounce from long-term support at 38 cents per pound (previous resistance). A clear break of the downtrend in place since the 2022 market top (with a retest currently taking place). A divergence bottom suggesting greater internal strength than what price action indicated during the break. The recent break from a test of resistance just under 50 cents was disappointing for the bulls, but another challenge could be expected, given the fundamentals.

The bullish picture on the daily chart was damaged more than anticipated with concerns over the new administration's support for the renewable diesel industry -- or lack of -- weighing on values. Prices remain well above the fall lows and have gone from overbought to oversold on the break. Indicators are close to triggering buy signals that may inspire technical traders to step in and bargain hunt.

Analysis of market participants themselves shows money managed funds trimmed their net long with more of the same expected in the next update. Given their record net long was 126,543 contracts and they were only at 56,060 contracts as of Nov. 19 (with significant sales since then) plenty of buying support could be seen on a resumption of a rally.

Bringing it all together, the unsustainable export pace along with strong domestic use should tighten the soybean oil balance sheet further with increased crush likely necessary. Additional price strength following the nearly two-year slide would be reasonable to expect, providing spillover support for canola. Being patient and making incremental sales that reward rallies continue to appear to be an appropriate marketing strategy for canola at this point.

I'm always happy to get feedback along with any suggestions for future blogs. Please feel free to contact me.

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Editor's Note

As a new administration prepares to take office in the U.S., farmers are preparing for the next growing season. In this year's DTN Ag Summit, we'll examine the state of national farm policy, including timing on a farm bill, makeup of the ag committees and new leadership at USDA. A few of the winners of this year's America's Best Farmers and Ranchers award share what they've learned from selling directly to consumers, and the DTN markets and weather team will offer their perspective on what's in store for 2025.

The DTN Ag Summit is scheduled for Dec. 5-6, 2024. Use this link to sign up: https://dtn.link/…

You can also see more about the upcoming Summit at https://www.dtnpf.com/…

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

Follow him on social platform X @mgreymiller

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