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Canola futures market weaker, but basis strengthens

Canola

Canola futures prices have weakened recently while basis levels have improved. In Canada, basis levels have reportedly increased from $1.95 per metric ton (MT) to $6.91 per MT in the regions reported by pdqinfo.ca. In North Dakota, canola basis levels improved by $5 per MT to $10 per MT in the last month.

North Dakota canola growers have delivered only 22 percent of expected canola production for the current marketing year to area crush plants. This is down from the 10-year average of 33 percent and the lowest level in eight years. This implies canola deliveries should ramp up significantly in the new year and strengthening basis levels indicate more canola is needed in the short-term.

Canola deliveries from growers in Canada are also reported to be on the lighter side, as deliveries are only 7.3 percent lower than the three-year average. Analysts speculate this may indicate either producers are reluctant sellers, or the crop is not as large as forecast.

In its Annual Crop Production Summary, the USDA lowered average canola yields in North Dakota to 1,820 pounds per acre. This is a reduction from 1,920 pounds per acre from its October report and the first time in many years USDA has lowered full season yields from earlier estimates. It dramatically raised yields in Minnesota by 28 percent from its October report to a record 2,412 pounds per acre. Overall canola production in the U.S. is said to be 3.82 billion pounds, a new record. Production in North Dakota is also a record at 3.25 billion pounds.

Canola seed imports are revised down by 194 million pounds on slowing imports from Canada, estimated to total 1.35 billion pounds. The lower production and lower imports estimated by USDA will trim the total canola supply by 318 million pounds to 5.4 billion pounds. The annual canola crush was revised down by 286 million pounds to 4.4 billion pounds. The Northern Canola Growers Association believes this estimate is too low based on crush margins and end user demand.

The USDA also raised the canola oil supply for 2022-23 by 15 million pounds to 6.69 billion pounds and says it is expected to satisfy the growing domestic demand for canola oil in the U.S. Due to the EPA approving canola oil for use in renewable diesel and renewable jet fuel, it also raised the forecasted amount of canola oil in the production of biofuels by another 100 million pounds this month to 1.6 billion pounds, a new record.

The March ICE canola contract finished at $836 per MT on Jan. 18, lower by $5.20 per MT on the day and down by $30 per MT in the last two weeks. The May canola contract ended at $836 per MT also, down $4.30 per MT on the day, and down significantly in the last two weeks. It is interesting to note that back on Nov. 29, the ICE canola contract was at $836 per MT, while soybean oil was at $0.76 per pound. Today, canola is at the same level, while soybean oil has dropped in that time to $0.64 per pound. And soybeans are higher by $0.60 per bushel in that time. Evidently, soybean meal and canola meal made up the difference.

An upper bound of $900 per MT on the ICE remains a challenging high point for the canola market and many in the industry do not see canola eclipsing that level during the year, suggesting 30 cents per pound canola prices may be the high mark for 2023, barring any black swan events occurring. However, it is worth noting that the USDA projects a seasonal average canola price of 30 cents per pound. The time of year when canola prices have the most potential to exceed this would be in April and May when the canola market would have to buy acres. It remains to be seen if the canola market will hit its seasonal highs this spring as it typically does.

As of Jan. 18, prices at nearby crush plants ranged from $27.54 to $29.30 per hundredweight for January deliveries and $27.54 to $29.30 for February and March deliveries, down 40-50 cents in the last two weeks.

NDSU and the Northern Canola Growers Association will host a “Getting it Right in Canola Production” virtual meeting on March 9. This is an annual crop production conference featuring the latest research-based production information presented by NDSU specialists. Canola growers can go to northerncanola.com to register for the virtual conference.

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