Canada Markets

The International Grains Council's recent data release suggested that a 6% dip in global production of canola/rapeseed, based on a combination of a reduction in seeded acres and lower yields, will result in the first drop in global consumption in nine years. They also see global trade falling to a five-year low and suggest Asian demand slipping due to the presence of lower-priced alternatives. Despite lower consumption, global ending stocks are estimated at 4 million metric tons is a 25% drop from 2014/15.

It is interesting that this scenario comes at the same time that the ICG sees global soybean trade increasing 4 mmt or 3.4% to a new record volume of 122 mmt. The USDA's June data also calls for increased trade in soybeans, but also in all major oilseeds combined. The estimate for the USDA's global ending stocks of all major oilseeds were lowered in June from the previous May estimate, but 2015/16 ending stocks are still estimated to be 7.6% higher than the current 2014/15 estimate at 104.59 mmt.

The tight balance sheet for canola/rapeseed will undoubtedly lead to a premium for the seed, although the question remains at what price point is demand eroded in favor of cheaper alternatives? The attached long-term chart shows the current canola/soybean spread at $72.45/mt (a snapshot taken prior to the close), while trade ended the week with the spread closing at $76.87/mt. The most recent five-year period could suggest that canola has further upside potential. As seen in the lower study, monthly highs of $99.49/mt in May 2011, $107.50/mt in March 2012 and $99.93/mt in March 2013 could form a band of resistance given a further move higher, although suggests that canola could potentially have a further $22.50/mt to $30.60/mt upside potential relative to soybeans before encountering resistance.

The all-time high for this spread is seen at $185.08/mt in February 2008.

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

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(ES)

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