Canola futures, fresh from touching their lowest levels in nearly six months, revived after Canada slashed its forecast for domestic inventories, citing “strong world demand” which has fuelled a surprise lift in exports.
Canola futures for January 2016, which in the last session fell to Can$465.40 a tonne, the contract’s weakest since late January this year, closed up 0.8% at Can$464.60 a tonne in Winnipeg.
The increase, the first higher close in six sessions, followed a downgrade by 600,000 tonnes to 1.10m tonnes in the official estimate for Canadian canola stocks as of the close of 2015-16.
The drop in the estimate for inventories, now seen more than halving year on year, reflected in the main an increase in the forecasts for exports, which are being boosted by “strong world demand” for the rapeseed variant, besides for canola oil and meal, Canada’s farm ministry, AAFC, said.
‘Exports need to decelerate’
Indeed, the pace of Canada’s canola exports as proved “stronger than expected”, starting off 2015-16 more rapidly than last season despite a harvest this time which, at 14.30m tonnes, was down 12.9% year on year.
“To date, the export pace is ahead of 2014-15, but will need to decelerate during the rest of the marketing year as the exportable supply decreases,” AAFC said.
In August and September, the first two months of Canada’s canola marketing year, Canada’s exports of the oilseed reached 1.38m tonnes, with China the top buyer, followed by Japan and Mexico, according to Statistics Canada.
Shipments are being supported by factors including the weakness of the Canadian dollar, which “is allowing canola to compete against burdensome supplies of soybeans, soyoil and palm oil and soymeal”.
However, perceived health benefits are playing a role too in the forecasts, which prompted AAFC to nudge higher by Can$5, to Can$495-525 a tonne, its forecast for average Canadian canola prices in Vancouver for 2015-16, a marginal increase year on year.
AAFC noted that US officials were reporting that “canola oil prices are maintaining a significant premium to soyoil across the US Midwest”.
The strength “is partly related to the proportion of high-oleic canola oil compared to conventional canola oil that is marketed through the US,” the ministry said.
“High- oleic canola oil possesses several nutritional and processing advantages making it less sensitive to price pressures from the conventional vegetable oils.”
‘Concerns about poor conditions’
The comments came in a report in which AAFC made minimal changes to estimates for Canada’s 2015-16 grain dynamics.
However, it cautioned over prospects for the winter rye crop, despite “good” moisture conditions in the Prairies as the crop headed into dormancy.
With a strong El Nino expected to last the winter, “the main Canadian rye area can expect average normal temperatures with below-average precipitation,” the ministry said.
“For rye, this creates the possibility of above-average winterkill, as the combination of light snow cover and warm temperatures will leave it vulnerable to breaking dormancy and being subject to freezing temperatures.”
World rye prospects for the 2016 harvest have already taken a knock with unduly dry autumn weather in parts of the former Soviet Union which set back development of winter crops.
“Concerns about poor conditions for autumn sown crops supported local rye prices in the Black Sea region [in October], with gains of around 9% reported in Russia and 4% in Ukraine,” the International Grains Council said last week.
(Source – http://www.agrimoney.com/news/canola-futures-break-losing-streak-helped-by-canada-squeeze–9041.html)