“The capacity of crush could grow from 11.3 million metric tonnes today to 18 million metric tonnes in three or four years,” said Chris Vervaet, executive director of the Canadian Oilseed Processors Association (COPA).

Vervaet was among the speakers at this year’s CropConnect conference in Winnipeg Feb. 14. His talk focused on the impact of renewable fuels on the canola value chain.

“This is unprecedented,” said Vervaet. “I’ve talked to folks who have been around oilseed processing for the better part of 30 or 40 years; they’ve never seen this kind of growth.”

Roughly 2.5 million tonnes of canola seed equivalent stocks are currently used for biofuel markets in Canada, the U.S. and the EU. Vervaet said it could grow to 5 million by 2026 and could reach as high as 8 million by 2030.

“We’re taking a stab in the dark here a bit, but we feel pretty optimistic about the role of biofuels in seed demand going forward,” he said.

To meet that demand, seven new Canadian facilities have been announced over the last three years to bolster renewable diesel production capacity.

“If it all gets built the way that it’s been described in their press releases, that could be 4 billion litres of capacity over the next four or five years,” said Vervaet.

South of the U.S.-Canada border, another 25 facilities are either operating, under construction or being planned. “If that all comes to fruition in a couple of years time, that’s close to 30 billion litres of production capacity,” said Vervaet. “This is a tremendous opportunity to see more value-added processing occur in Canada.”

–Further coverage to come. 

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Oilseed processors in Canada crushed 772,345 tonnes of canola last month, as well as 139,164 tonnes of soybeans for the month of June for a total of 911,509 tonnes of oilseed crush, a decrease of 3,425 tonnes from May and an increase of 114,896 from June 2022. 

The canola crush was a slight increase from the 769,942 tonnes processed in May, with 323,308 tonnes used for oil and 457,628 used for meal. In June 2022, 660,215 tonnes of canola seed were crushed. For soybeans, the June crush was slightly below May’s, which had 144,992 tonnes. In June, 26,409 tonnes of soyoil were produced, as well as 110,017 tonnes of soymeal. In June 2022, 136,698 tonnes of soybeans were crushed. 

Canadian grain deliveries in June reached a three-month high of 4.203 million tonnes, an increase of 1.113 million from May and 1.303 million from June 2022. Most of the deliveries came from wheat, which totalled 2.363 million tonnes, an increase of 784,000 from May. From the June wheat total, 365,256 tonnes were durum, compared to the 198,210 tonnes delivered in May. 

Canola deliveries also increased by 321,773 tonnes in June from the previous month to 1.328 million, while oat deliveries gained more than 64,721 tonnes to 297,979. Rye deliveries added 2,931 tonnes to the June total at 14,506, while 30,783 tonnes of flaxseed were also delivered in June, 9,283 more than in May. However, barley deliveries declined by 69,325 tonnes from May to June to 169,468. 

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“We’ve come down a long way and having a bit of a rally wouldn’t be unusual,” commented analyst David Derwin of PI Financial in Winnipeg, Man. “After we had all of the markets pull lower in the last month or so, we have seen fluctuations both ways.”

On July 20, the nearby November canola contract on the Intercontinental Exchange fell C$21.80 to close at C$817.20 per tonne. In the days prior to that, the November broke below C$800, a far cry from the C$1,200 canola seen months earlier.

By July 27, November canola made some headway to sit at C$824.40/tonne. That Derwin noted was due in part of higher prices for global crude and other vegetable oils.

He said the November contract presently has its support level at C$800/tonne, adding that Minneapolis September wheat has its support at US$9/bushel and that Chicago September corn is at US$5.75/bu.

Derwin stressed it’s best to watch the movements of ‘the King of Commodities’ as well as ‘the King of Currencies,’ those being crude oil and the United States dollar respectively. He said both set the tone for the grain markets, stating a stronger greenback is not good for the grains. Stronger crude oil, he said, helps the vegetable oil market, including canola.

Derwin also spoke of the agreement brokered last week by the United Nations and Turkey that allows Ukraine to export grain out of its war-torn ports. Since the beginning of the Russian invasion of Ukraine, the latter has had tremendous difficulty in shipping its grain to its customers.

The deal is said to permit Ukraine to use its port of Odesa and others nearby. Ukraine said it should be able to move 3.5 million tonnes of grain per month, with the first outbound shipment before the end of July. Derwin said the deal pulled the markets lower, especially wheat.

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While flaxseed prices in Western Canada are still at or above those from last year, they have come down by at least 15 per cent since last month.

The high-delivered bid for flax in Saskatchewan is C$28 per bushel, down five dollars or 15.2 per cent since one month ago, according to Prairie Ag Hotwire. In Manitoba, its high-delivered bid went down even lower, losing C$7.61/bu. or 25 per cent from last month at C$22.66, which is only 17 cents lower than its price last year. In Alberta, the high-delivered bid shed C$5.88/bu. over the course of a month at C$20.37, a 22.4 per cent decline.

Scott Shiels, grain procurement merchant for Grain Millers Inc. in Yorkton, Sask., said the main reasons for the falling flax prices are buyers already purchasing enough old crop and good growing conditions for new crop.

“You get to that point in the year when you generally see in the summer if the crops are looking good,” he said. “We’re a couple of weeks behind, but the conditions look good. We’re going to watch prices slide down even more going into harvest and see what starts coming off.”

Only 346,000 tonnes of flaxseed was produced in Canada last year, according to Statistics Canada, a 40 per cent drop from 2020. Agriculture and Agri-Food Canada (AAFC) projected in its July estimates that production will only rebound slightly to 420,000 this year.

Due to lower yields and lower quality, Shiels said the price of flaxseed at one point was more than C$50/bu., which he believed was overpriced.

“I don’t want to say the farmers don’t deserve to get more money for their grain, but when you have such a tight supply, everything is extremely overpriced against the sales you have on. So you really just want to get in, get your stuff bought, get out of the market and mitigate the losses on what you’re buying,” he explained.

If there are above-average yields this year, Shiels estimates that the price of flaxseed could still have some room to drop. However, supporting prices is the fact flax is still very much in demand as a health food.

“Our flax business has grown considerably over the last five years,” he said. “The world always seems to be more conscious of what it’s eating nowadays and that really has benefited us. It compliments are oat business well because it is now being looked at as a health food now. I think demand will continue to grow.

“I don’t think we’re going to see prices go down. I think there’s an 80 per cent chance of upside compared to 20 per cent of downside.”

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“The major one is the overall drop in the commodity world. For instance, products like cotton went down 30 per cent in three days,” commented Errol Anderson of ProMarket Communications in Calgary, Alta.

“Crude oil, the king of commodities is holding up, but the clock is ticking on that one. Somewhere crude is going to suddenly drop and it will drop hard when it goes,” he added, expecting crude to tumble either in early or late summer.

In turn, the main reason for this is the global economy is already in a deep recession; one Anderson is concerned that will last longer than the usual 18 months.

“This is a debt bomb that just went off,” he commented.

He theorized prices could test their resistance levels. He said the nearby November contract has its upper resistance at C$940 per tonne, with the heavy at C$975. Pushing downward, canola would find support at C$845 per tonne with the heavy at C$780.

“We’ll probably get a rally around mid-summer just on the weather, but the thing is with the [market] environment the rallies won’t hold,” Anderson said.

As for cash prices, the analyst expects basis levels should remain quite good with cash bids between C$17 to C$22 per bushel.

As for days of canola being well over C$1,000 per tonne, he said they are very much over.

“The old highs are the old highs. We’re not going back there, but if we do, producers should jump on it,” Anderson stated.

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The net managed money long position in ICE Futures canola came in at 25,117 contracts on June 21, 2022 (31,615 long/6,498 short), which was a decrease of about 7,000 contracts from the previous week.

The long liquidation was met with some end-user demand on the other side, with open interest only down by about 700 contracts at 146,674.

Heavy selling pressure on June 22 and 23 should see more speculative long positions flush out of the market in the next report.

At the Chicago Board of Trade fund traders reduced their net long position in soybeans by about 9,000 contracts, taking it to about 149,300.

The corn managed money net short position fell by roughly 12,000 contracts, to about 241,700.

In wheat, investors also reduced their net long positions, with the Chicago soft wheat net long at about 3,200 contracts, Kansas City at 31,000 and Minneapolis spring wheat at 12,400.

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The department on Wednesday issued its first survey-based prospective planting report for 2021, which called for increased acres for soybeans and corn, but at numbers below market expectations. That sent prices on the Chicago Board of Trade (CBOT) — as well as the Intercontinental Exchange (ICE) — into a frenzy of daily limits.

ICE canola’s four front months closed out trading with gains of $30 per tonne, up their daily limit. In turn, ICE raised the limit to $45/tonne effective Thursday.

Where prices go from here remains to be seen, but after a few weeks of needing fresh news, the commodities got much more than a good jolt to breathe new life into the markets.

With the average trade guess for planted U.S. soybean acres at about 90 million, the USDA report came in at 87.6 million acres.

That five per cent gain over plantings in 2020 is likely not enough to meet demand, according to Winnipeg-based independent trader Jerry Klassen.

“The way things are going with the export demand, it looks like we’re going to have another tight year on the beans. So that is supportive for canola,” Klassen said, noting markets will hold their value until the crops are more certain.

It was a similar story for U.S. corn, for which USDA forecast a tiny increase of 0.3 per cent in planted acres, at about 93 million. That also will mean pressure on corn, facing tight supplies. Thus, Klassen stressed that corn will likely be ruled out as a substitute for feed grains such as barley and wheat.

At this point in the marketing year, he said, attention will be turning away from the old-crop months to focus on the new-crop months.

Also, Klassen predicted a sharp increase in canola acres in Canada, perhaps to a record amount, in 2021. The most recent forecasts from Agriculture and Agri-Food Canada (AAFC) projected 20.1 million acres of canola to go into the ground this spring. Statistics Canada is scheduled to come out with its first survey-based set of projections at the end of this month.

With dryness across much of the Prairies, where the vast majority of canola is grown in Canada, there’s likely to be a premium — and that, he said, could see canola prices climb higher.

— Glen Hallick writes for MarketsFarm from Winnipeg.

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On the supply side, lower production of palm oil began to support those prices back in the spring, he said, adding the primary driver of canola prices are the vegetable oil markets, of which palm oil is the largest in volume.

Crop conditions in North America have also played a role, he said.

“Hot weather during canola flowering was followed by dryness in much of Saskatchewan on the Canadian Prairies. Then in mid-August, adverse weather affected production in the major U.S. soybean producing states. Although the canola and soybean crops are still expected to be large, expected yields have been trimmed.”

On the demand side, China has booked much higher soybean purchases from the U.S. than a year ago, said Blue.

“Part of this demand is thought to be due to the recovery in China’s hog population after millions of hogs were lost there to African swine fever,” he said. “Canadian canola exports six weeks into the crop year are 30 per cent higher than last year at this time. Canola crushing so far is similar to last year’s strong pace.”

Then there’s the influence of speculative funds trying to profit from price moves.

“Some speculative trading in the futures and options market is a good thing as that trading activity adds trading volume, which helps hedgers to more easily enter and exit the market,” said Blue.

“Each week in the U.S., the Commodity Futures Trading Commission gathers and releases information on what groups hold positions in each commodity futures. The speculative funds had been in a sell position on canola and soybean futures.

“As prices began to rise on changes in expected production and strong U.S. soybean sales to China, the spec funds began to buy, first offsetting their sell position and then moving to a buy position. This enhanced the price rise.”

Now that harvest is underway, some farmers are taking advantage of the higher prices by selling newly harvested crop.

“That selling by producers is suppressing a continued price rally for now. There is still plenty of uncertainty in the market. Actual soybean and canola production will not be known for a few weeks yet. Continuation by China in buying large amounts of U.S. soybeans is uncertain. South America is expected to produce a record soybean crop. If weather in South America supports large crop production there, that crop will become available to export early in 2021 and into next summer.”

So producers should strike while the iron is hot, he said.

“Pricing some canola during harvest at from $11 to $12 a bushel for near-term and deferred delivery is a pleasant market surprise to take advantage of,” he said.

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Despite more lows than highs over the past year, prices are strong and could get better, market watchers say.

“We’re seeing better pricing opportunities right now for canola, and there’s a possibility that prices will move higher,” said Bruce Burnett, director of MarketsFarm (a division of Glacier FarmMedia, which owns the Alberta Farmer). “We’re going to see prices in a lot of areas of the Prairies above the $11-a-bushel mark. Given what we were looking at a year ago, that’s a very good price level.”

This is partly because China (despite being upset over the detention of Huawei executive Meng Wanzhou on a U.S. extradition warrant) is still buying, partly through what some are calling ‘backdoor’ imports of canola oil from the United Arab Emirates.

But that isn’t the full story, said Neil Townsend, chief market analyst for FarmLink Marketing Solutions.

“We’ve done very well in the last four months getting it through (China’s) front door,” he said. “We averaged over 265,000 tonnes per month for the last four months of the marketing year, and that’s really good.”

In China, canola oil is a premium product that food processors use as a ‘front-of-the-box claim’ of quality. As well, shoppers use it in when cooking at home, and so use has gone up since the pandemic hit, he said.

“They’ve been getting their canola oil from a variety of different places, but that demand has been created over multiple years,” said Townsend. “Even with the restriction on Canadian canola entering the market, that demand didn’t fade away.”

The recently concluded crop year turned out “a little better” than expected for seed sales to China, even after Beijing shut its doors on Viterra and Richardson International (the biggest two sellers) in March 2019, he said.

“(It) wasn’t as bad as we thought it would be,” he said. “They’re probably down a little bit from their total use of Canadian canola, but not as much as you’d think with all the political noise.

“It certainly was an impediment, and we’d prefer it to go away, but we still managed to get canola in both through the front door and through the back door.”

The outlook

Whether prices remain strong will depend, in part, on this year’s harvest. Agriculture and Agri-Food Canada estimates canola production will hit around 18.9 million tonnes, while FarmLink’s production estimate is closer to 20.2 million tonnes — about a 1.3 million tonne difference.

“That difference is absolutely critical,” said Townsend. “If we don’t get the yield and it’s closer to the AAFC number, that is very supportive of prices. Futures would go above $500 for more days, and we’d see some prices above $11.”

Still, demand is robust.

For example, the United Arab Emirates has upped its purchases of Canadian canola, said Brian Innes, vice-president of public affairs for the Canola Council of Canada.

“It’s important for growers to understand that we have always exported to the UAE — in fact, we’ve exported significant quantities to the UAE in the past,” said Innes. “It was only three years ago that we exported approximately 800,000 tonnes to the UAE. This year, we’re going to be a little bit more than that, but not substantially so.”

The reason for that is strictly economics, he added.

“The UAE has a modern, large crush plant similar to the modern, large crush plants we have in Canada, and when market conditions are right, it imports canola seed from Canada,” he said.

“It always has operated to source oilseeds from the most favourable origin and provide those products to the most favourable destination.”

China may be one of those destinations, but only because demand is strong, said Burnett.

“Whether that canola oil ultimately goes to China or to another country, we don’t really know,” he said. “But the UAE has upped its purchases this year of Canadian canola from the last few years, and that’s because it’s essentially looking at what commodity it can crush that gives it the best profit.”

Strong oilseed demand

There is “robust demand for oilseeds in general,” Burnett added.

“The global vegetable oilseed market is expected to tighten this year, specifically rapeseed and palm oil. That’s part of the reason we’re seeing more interest in canola,” he said.

Other countries have increased their purchases, which “helps make up for a lot of that shortfall in (Chinese) demand.”

“Other countries that last year were maybe not quite as aggressive buyers of canola have returned to Canadian canola this year,” he said. “Overall we’ve seen very strong demand for canola this crop year.”

The European Union in particular has upped its imports of Canadian canola seed for its growing biodiesel market as a result of a smaller-than-expected rapeseed crop.

“Our exports to Europe are on track to be approximately two million tonnes on a crop-year basis, which is up substantially compared to what they have been in the past,” said Innes.

But China’s demand for canola can’t be discounted, even if it has reduced seed imports, Townsend added.

“Whenever you impose import restrictions on a product that people actually use and you’re not self-sufficient on, you hurt yourself more than you hurt other people,” he said.

Take advantage

And that, more than anything, has kept prices stronger than expected for canola producers in recent months.

“Prices have rebounded from the low levels that they were at immediately following the blockage in 2019,” said Innes. “When the dominant purchaser isn’t purchasing or is purchasing at less than normal levels, the value of our product goes down. But there has been strength recently because producers have adapted and the market has adapted.”

Futures prices have “increased significantly” over the last month and could go even higher as harvest continues across the Prairies.

Producers should be taking advantage of those higher prices while they can, by selling at least some of their production into this run-up in prices, said Townsend.

“With COVID-19 and all the political craziness right now, volatility and uncertainty are maybe at the highest levels I’ve seen in my career in the business,” he said. “We’re trying to offset risk by advancing sales sooner than later to get to a better comfort level where we have less exposure to the market.

“For canola, we’ve sold 40 per cent of our expected supply already, and if we can do a deferred sale where we could get up to 60 per cent sold, to us, that’s money in the bank.”

There’s always the chance that prices could go higher, but “this is a multi-year thing,” he said, and producers will still be able to capitalize on it in the months ahead.

“If we get tighter stocks this year, the strength of the market will persist into the early stages of the next crop year — 2021-22 — and you’ll be able to sell at good values for expected production,” said Townsend.

“If you miss it a little bit because you sold some early to take risk off the table, you’ll make it up because you’ll make some good first sales for the next crop year.”

Burnett agrees.

“Once we’re through this year’s harvest, we’re probably going to see stronger canola prices as we move through the marketing year, mostly because of the very good demand for Canadian canola for the first half of this new crop year,” he said.

“That, I think, is going to be very positive as we move through harvest. Certainly it’s good news for farmers in Western Canada.”

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While off-the combine deliveries were slowing down with the advent of winter, the commercial pipeline is still filled with recently harvested canola supplies. The weekly Canadian Grain Commission numbers showed that weekly farmer deliveries declined to 378,800 tonnes during the first week of November, from about 500,000 the previous week. However, with exports also down on the week, total visible supplies of 1.494 million tonnes are more than enough to meet the nearby demand and should be limiting end-user buying interest.

From a chart standpoint, the January contract traded below the psychological C$480 per tonne mark during the week, with prices hitting their weakest levels since August 2017. However, values were hard pressed to go much below that, with speculative short covering coming forward on any attempts at breaking lower.

However, most analysts remain of the opinion that it’s only a matter of time before the support fades, with a downside target of C$450 a distinct possibility over the next few months.

Activity in Chicago Board of Trade soybeans will have a big influence on what happens in the canola market as well, with the United States harvest wrapping up and attention turning to the South American growing season.

The U.S. Department of Agriculture released updated supply/demand estimates on Nov. 8 which included a sharp decline in projected soybean exports and a resulting increase in the U.S. soybean ending stocks forecast. While there have been occasional tweet-fueled rumblings of a possible resolution to the China/U.S. trade dispute, nothing tangible has happened yet and exports could decline further in subsequent reports.

A meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 conference in Argentina at the end of November will be followed closely.

Mounting concerns over African swine fever in China could also come to play in the soy market, as any reductions in China’s large hog herd would cut into the global demand for soymeal.

Soybean futures posted some large price moves during the week, but were trending lower overall.

Corn was also choppy during the week, with seasonal harvest pressure keeping the overall bias pointed lower despite a downward revision to the U.S. yield estimate from the USDA.

For wheat, ample world supplies and continued export competition out of the Black Sea region kept North American prices under pressure. However, winter wheat seeding delays in parts of the U.S. Plains were being followed as a potential supportive influence, with some intended acres likely ending up unseeded before the winter sets in.

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