Canola prices have come down from their bullish run during in the first part of November. Concerns about COVID lockdowns slowing down Chinese consumption, a global recession next year, and potentially strong production in South America have weighed on commodities, especially vegetable oils. The industry had turned very bullish recently as crude oil prices traded higher and vegetable oil crush rates increased. In the last two weeks, however, soybean oil has declined 2.6 percent while canola has declined over 6.1 percent, causing canola to be the underpriced oilseed at the moment. Crude oil continues to trade lower and European rapeseed futures are also weighing on oilseeds.
In the USDA’s recent Oil Crops Outlook, it noted that U.S. soybean oil export prices remain above world prices and are particularly higher than Argentina, the largest competitor in the oil export market. So USDA looks for foreign demand to wane, reducing its soybean oil export forecast by 100 million pounds to 1.3 billion pounds. This has negatively affected canola values.
USDA also raised its forecasted global rapeseed production by 1 million metric tons (MMT) to 84.8 MMT as Australia, Europe, and Uruguay have higher indicated production. Australia will have record canola production this year. In Europe, Germany, France and Denmark, higher production has resulted in a reduction of Europe’s import forecast. Projected global growth will exceed growth in demand, causing ending stocks to rebound to 7.2 MMT from last year’s low level of 4.4 MMT.
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The canola industry has been patiently waiting for word on the approval of renewable diesel fuel advanced biofuel pathways for canola oil. The Office of Management and Budget (OMB) completed its review of the Final Rule from EPA on Nov. 15. It had been reviewing the rule for nearly two months. There are no major changes anticipated from the rule proposed earlier this year. The rule is in response to a petition filed by the U.S. Canola Association in March of 2020.
The canola industry agrees that renewable diesel, jet fuel, heating oil, naphtha and liquefied petroleum gas (LPG) derived from canola oil via a hydrotreating process would meet the lifecycle greenhouse gas (GHG) emissions reduction threshold of 50 percent required to qualify as advanced biofuel and biomass-based diesel under the Renewable Fuels Standard.
The January ICE canola contract finished lower for the sixth-straight session on Nov. 23 at $829 per metric ton (MT), down $6 on the day but down $54 per MT in the last two weeks. The March canola contract ended at $823 per MT, also down significantly in the last two weeks. Canola is underpriced relative to other oilseeds now. Given the extremely high canola crush margins, there is every incentive for crushers to maximize output. A year ago, ICE canola was trading at $1,024 per MT after moving higher in the month.
Local cash prices have fallen considerably from earlier in the month. As of Nov. 23, prices at nearby crush plants ranged from $27.44 to $29.20 for November deliveries and $27.44 to $28.85 for December and January deliveries, down over $1.50 per hundredweight in the last two weeks.
The Northern Canola Growers Association annual business meeting will be held Wednesday, Dec. 7 at 3 p.m. (CT). The event will also feature presentations on insights in canola diseases and new tools for flea beetle control in canola on Thursday, Dec. 8. Those interested in attending can get more information at www.northerncanola.com or mnwheat.org.
