Agriculture and Agri-Food Canada's December supply and demand estimates, found in the monthly Canada: Outlook for Principal Field Crops report, included a sharp increase in 2015/16 canola demand. This was in response to the Statistics Canada surprising production increase of 2.9 million metric tons, to 17.2 mmt earlier this month.
This month's projections include an increase of 1.5 mmt of exports from the November estimates, to 9.5 mmt. This would represent a fresh record, above last year's 9.154 mmt and 14.9% above the five-year average. Domestic crush was increased by 800,000 metric tons to 8.2 mmt, well-above last year's 7.357 mmt and 19.3% above the five-year average.
This leap to a total demand volume of 17.7 mmt is expected to result in ending stocks of 1.750 mmt as of July 31, up 650,000 mt from last month's estimate but down 24.6% from the estimated 2.322 mmt carried out of 2014/15.
The attached chart shows cumulative demand is currently nearly on track to reach these inflated demand estimates, as of the most recent data (Dec. 13 for exports and Dec. 16 for crush). This is indicated by the red line (actual disappearance) trending along with the diagonal black line, which represents the steady pace needed to reach the 17.7 mmt demand figure.
Even though the December data suggests an increasingly bearish outlook for the crop, the March contract has reached its highest level in 19 weeks this week with a high of $493.20/mt and may also close near or even possibly at the highest level seen in the past 19 weeks. This comes just ahead of the crop's period of seasonal strength which has seen the nearby contract move higher from the second week in January until late May/early June, as has taken place on average over the past five years.
Futures spreads have also narrowed this month. While the nearby Jan/March spread continues to reflect a bearish view of fundamentals, the March/May has narrowed from an $8.40 carry to a $5.30 carry this month at the point of writing, reflecting a neutral view of fundamentals. The May/July has narrowed from a carry of $6.20 to a weak carry of $2.30/mt, which could be viewed as a bullish view of fundamentals.
Note: Due to DTN's offices closed Friday, there won't be another blog until Monday. On behalf of DTN, have a Merry Christmas!
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