Canada Markets

In recent weeks, this column has looked at the bullish nature of the canola/rapeseed market, with the market's overall potential subjected to the bearish nature of the global soybean situation.

In the USDA's May Oilseeds: World Markets and Trade report, global rapeseed/canola production was estimated at 68.1 million tons for 2015/16, the first annual drop in production seen in five years and 3.6 mmt lower than 2014/15 production. At the time, Canada's production was viewed to fall by 800,000 mt to 14.8 mmt, a drop of 4.9%. The European Union's production was estimated to fall by 11% or 2.7 mmt to 21.6 mmt.

Global ending stocks of canola/rapeseed, according to the USDA's May report which is due to be revised next week, was reported at 5.461 mmt, a three-year low. This situation will obviously tighten further given growing challenges faced in Canada due to both drought and recent frost events. Saskatchewan Agriculture's first look at crop ratings pegged the province's crop as being 44% Good to Excellent as of June 1, far below the 87% Good to Excellent rating released on June 2 2014. At the same time, DTN's forecast shows little relief for the Prairies in the seven-day forecast, as opposed to the U.S. Midwest which will see excessive moisture fall in some areas.

Twitter communications suggest that Oil World has dropped its forecast for global rapeseed production to 67 mmt, which would lead to an even tighter situation, undoubtedly due to the challenges faced in Western Canada.

As seen on the attached chart, the August rapeseed contract on the Euronext market has also broken higher in recent weeks, although this chart may tell a larger story. This new crop contract reached its weekly low in the week of July 21 2014 and has trended higher since. This is long before the weekly low on the November weekly canola chart in the week of Dec. 1 and the weekly low on the new-crop October soybean oil chart, which saw its weekly low reached in January 2015. While November canola has reached its highest level this week since the week of April 21, 2014, August rapeseed has reached its highest level since Nov. 25, 2013.

The gains in the August rapeseed future have also been sustained without an overly bullish reaction from the commercial trade, with the August/November spread seen in the middle study (purple line) trading at a weak carry of E2.75, suggesting keen non-commercial activity behind the move. Should commercials become increasingly bullish, further upside momentum can be expected.

While some European commentary indicates a focus on Canadian crop conditions as one potential driver in its recent trade, the chart would indicate the rapeseed market has responded much earlier than canola. This is without the commercial bullishness seen in the canola market and could be signaling a larger story is to unfold.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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