Canada Markets

Canola Viewed as Expensive Relative to Soybeans

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The black bars on the upper study represent the continuous active canola future, while the red bar represents the continuous active soybean future, both measured in Canadian dollars per metric ton. The lower study reflects the spread between the two, which is below the June high but historically high at $68.08/mt. (DTN ProphetX chart)

DTN ICE Canada commentary on Tuesday reported canola as "extremely expensive relative to soybeans." As seen on the accompanying chart, Tuesday's close of the continuous active canola/soybean spread ended at $68.08 per metric ton (mt). While this is well below the June high of $95.26/mt, this remains a wide spread relative to recent years, with canola trading well above soybeans.

Over the course of the 2017/18 crop year (Aug. 1-July 31), this spread averaged $51.31/mt, while averaging $22.68/mt in 2016/17, $23.32/mt in 2015/16, $17.47/mt in 2014/15 and minus $60.07/mt in 2013/14. Over the past five crop years (Aug. 1, 2013, through July 31, 2018), this spread has averaged $10.52/mt while over the past three years (Aug. 1, 2015, through July 31, 2018) has averaged $31.73/mt.

Varying fundamentals between the two crops could suggest that canola could continue to trade significantly higher relative to soybeans, as China looks to cut back on U.S. soybean imports while at the same time seeking alternative oilseeds or imports of products.

Friday's Oilseeds: World Markets and Trade could prove interesting when it comes to global canola/rapeseed estimates. In the July report, month-over-month 2018 global production was lowered by 2.645 million metric tons, citing reductions in forecasts for Australia, European Union, Russia and Ukraine. Further cuts to production may be included in the August report, while Canada could be added to the list given the current temperatures faced across the prairies this week and extended dry period faced in the western prairies.

To counter the expected drop in production, USDA revised global consumption lower in July by more than 2 mmt, with consumption expected to expand just 0.5% rather than the 3% estimated in the previous month. This allowed global ending stocks to be revised 310,000 metric tons higher for 2018/19. Global stocks as a percentage of use increased by 0.3% to 8.7% for the 2018/19 crop year from the previous month, although are forecast to fall from the 10% calculated based in 2017/18 estimates.

DTN 360 Poll

This week's poll asks you opinion of the crop's potential in your area. This can be found at the lower right of your DTN Canada Home Page. We welcome and appreciate your input!

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

Follow him on Twitter @Cliff Jamieson

(AG)

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