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Canola prices weaken due to renewed global macro concerns

Canola

Canola prices have deteriorated in the past few weeks due to macro issues – Chinese growth slowdown, cooler Midwest forecasts in the U.S., increased grain flow from Ukraine, and higher production expected in North America. Lower European Union (EU) rapeseed futures have also weighed on canola, along with lower palm oil values, as palm oil has returned to a discount to other vegetable oils, whereas it was selling at an unusual premium just a few months ago.

While canola prices have been under pressure, the ICE Canola Board Index shows a very high margin for canola crushers of approximately $140 per metric ton (MT). This is well above levels of approximately $7.50 per MT reported at this same time one year ago. The index is calculated using the November canola futures contract, as well as the October soy oil and meal contracts. Given the higher than usual margins, crushers are expected to be very aggressive in front-month purchases of canola this fall, competing with the export market.

The August WASDE report raised Australia’s canola crop output by 0.7 million metric tons (MMT) to 6.1 MMT on higher yields resulting from favorable weather conditions. Russia’s rapeseed crop is forecasted at a record 3.9 MMT, up 1.1 MMT from the previous forecast on sharply higher area. Its global oilseed forecast includes higher production, crush, exports, and ending stocks compared to last month. Global canola production was increased from 72.3 MMT last year to 82.5 MMT this year due to increased output from Canada, as well as the addition of Uruguay production to the world balance sheet. Canola production in that country has been increasing as it replaces carinata in crop rotations. Canola production in India and Ukraine has also increased the past few years. In last month’s USDA Oil Crops Outlook, global canola production was estimated at 80.23 MMT compared to 82.5 MMT in the current WASDE report.

For 2022-23, global rapeseed crush is forecast at a record, with the EU as the primary processor and consumer. Canada crush is expected to recover, making more rapeseed meal and oil available to the global market.

The canola industry expects finalization of the EPA Proposed Rule for a canola oil RFS pathway for renewable diesel in September. The Energy Information Administration recently predicted that renewable diesel production will surpass biodiesel production by October of this year. Currently, biodiesel production capacity is 2.2 billion gallons per year, while renewable diesel production capacity is 1.92 billion gallons per year. Renewable diesel refineries are much larger than biodiesel facilities, as only 11 renewable diesel refineries are currently producing as much as 72 biodiesel facilities. U.S. canola oil imports have expanded to augment vegetable oil for food use as demand for soybean oil for biodiesel and renewable diesel feedstocks has surged, primarily due to the LCFS in California. So far in 2022, 44 percent of the diesel sold in California was either biodiesel or renewable diesel, according to Clean Fuels Alliance America.

The November ICE canola contract finished the session on Aug. 17 at $815 per MT, down $6 in the last two weeks and up just $2.20 on the day. The January canola contract ended at $824 per MT, down $7 in the last two weeks.

Local cash prices, as of Aug. 17, at nearby crush plants ranged from $27.44 to $29.20 for Aug.-Sept. deliveries, decreasing approximately $1.00 per hundredweight in the last two weeks. Several locations are now posting prices for 2023 canola, with September deliveries priced from $26.47-$27.52.

Canola coloring in North Dakota was 68 percent, behind 84 percent last year. Canola crop conditions in North Dakota showed 67 percent was rated good-to-excellent, essentially unchanged in the last two weeks despite dry conditions in most of the state. This rating is up from 18 percent a year ago. Canola harvested in North Dakota is at 3 percent, behind 9 percent last year.

In Montana, 97 percent of the canola was turning color, and 26 percent has been harvested. Surprisingly, even with the hotter weather recently, canola crop conditions in Montana improved in the past two weeks as 54 percent of the crop is now rated good-to-excellent, up from 47 percent recently.

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