Canola futures could be poised to extend further their premium over those in rival oilseed soybeans, Commonwealth Bank of Australia said, flagging growing worries over dryness threats to Australian and Canadian crops.
Canola futures in Winnipeg, in closing at Can$506.70 a tonne on Friday for November delivery, opened a up “hefty” premium of $58 a tonne over the corresponding Chicago soybean contract, Tobin Gorey at Commonwealth Bank of Australia said.
That was well above the $36 a tonne at which the premium of the rapeseed variant stood a month before, November basis, on Agrimoney.com calculations.
And canola’s advantage could have further to go, assuming dryness concerns continue in the two top exporting countries, Canada and Australia.
“The November spread had traded into the $70s per tonne in August in the past so we are not outside historical experience – yet,” Mr Gorey said.
“Canadian and Australian weather might easily take a path that sets a new high for the spread.”
In Australia, there is actually some hope of rains to ease worries which have also been reflected in wheat markets, where the premium of Australian futures “remains high to reflect dry conditions”, Mr Gorey said.
“Weather forecasters are looking at a potential evolution in north New South Wales, south Queensland weather for next week.”
However, the “event is too fuzzy and too far away to move it from ‘possible’ to ‘probable'”.
And forecasts for the Australian crop, to be harvested later in 2017, continue to come in well below year-ago levels, with Rabobank last week pegging the harvest at 3.17m tonnes – a drop of 23% year on year and 16% below the five-year average.
The US Department of Agriculture earlier this month put the crop at 3.20m tonnes, while the Australian Oilseeds Federation has a 3.12m-tonne estimate.
‘Problem areas expanding’
In Canada, meanwhile, where a lack of rain is also making “Prairie crops suffer”, Mr Gorey said that “problem areas look like they might be expanding” from a core in the south west of the region.
“Now this looks to be extending eastwards and northwards,” he said, adding that dryness at “the weekend might well have made the worries worse”, with a potential for the troublespot to “expand to cover half the Prairies”.
Ag officials in Alberta said that, as of Tuesday last week, 56.6% of the province’s canola crop was rated in “good” or “excellent” condition, down 0.7 points week on week, and compared with an 85.2% figure a year before.
“Dry conditions continued in the southern region and some parts of the central regions, with a few areas receiving a brief reprieve,” the officials said.
Canada crop estimates
The concerns are placing particular attention on the prospect on August 31 of crop estimates from Statistics Canada which traders expect to show a 18.6m-tonne figure, only marginally higher than last year’s 18.42m-tonne harvest despite a rise in sowings to a record high.
Canada’s farm ministry currently estimates this year’s domestic harvest at 19.0m tonnes, while the US Department of Agriculture forecasts a 20.5m-tonne crop.
Oil World, which has warned of a “potentially explosive” situation in world canola markets, has reportedly forecast a Canadian harvest below 18m tonnes, while Lanworth last week put the crop at 18.4m tonnes.
“Canada rapeseed conditions continue to decline despite recent cooler weather,” Lanworth said, although adding that “rapeseed in central and northern Alberta and Saskatchewan still have a possibility of improving if some precipitation falls over the next few weeks during seed development”.
(Source – http://www.agrimoney.com/news/canola-price-premium-over-soybeans-may-rise-further-still–10958.html)