This time last year, I was working with a canola crusher. Concern was growing regarding the tightening canola stocks on the prairies, bullish farmers and the need to source seed through the summer months until new-crop supplies became available. So what has changed this year? According to Statistics Canada, total supplies should be 2.741 million metric tonnes less than the 2011/12 crop year. As well, crush capacity has been added, while export demand remains strong.
As of week 26 statistics for 2011/12, the half-way point of the marketing year, 55.7% of the 16.903 million metric tonnes of canola supplies were accounted for, either in year-to-date disappearance such as exports or domestic crush, or as visible stocks in commercial facilities. This totaled 9.419 mmt. Given total estimated supplies, there were 7.5 mmt to work with through the end of the crop year, which was July 31.
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As of week 26 in the 2012/13 crop year, 59% of the 14.162 mmt canola supplies, or 8.4 mmt, are accounted for in either crush, export or the visible stocks in commercial facilities, which is just below 1 mmt. Given total estimated supplies of 14.162 mmt, this would result in 5.8 mmt of seed to work with over the balance of the crop year, or the end of July.
Is this stock level enough? Over the first 26 weeks of this crop year, average weekly disappearance or weekly crush and exports, was 290,000 mt/week. At this pace, there would be enough seed for 20 of the 26 remaining weeks in the crop year, not to mention the first few weeks of August waiting for new crop to come off. Weekly rationing must take place, which is in fact starting to happen, with total weekly disappearance falling below year ago levels from week 24 forward.
Of course, all could change tomorrow with the Statistics Canada Dec. 31 stocks report. The industry will be challenged further should stocks be tightened further.
What is the market telling us? The nearby March/May spread gained $1/mt, or increased its inverse by $1/mt, in today's trade. This spread has gained $4/mt over the month of January. The old crop-new crop spread, or the July/November spread, has gained $10.40/mt over the past two weeks to $45.80/mt, with July trading over the November. Increasing spreads continue to indicate a growing bullish sentiment.
Everyone involved with the industry knows it's a tight situation, but the question is how tight? Tomorrow's report may set the tone for the canola market for the balance of the year.
Cliff Jamieson can be reached at firstname.lastname@example.org
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