In the Global Agricultural Information Network (GAIN) report released on Oct. 4, the attaché estimated Malaysia’s palm oil output at 19.20 million tonnes compared to 19.60 million the previous year, with the area harvested remaining at 5.13 million hectares.

The attaché cited, “the lasting effects of El Nino weather patterns,” as there’s often a six-to-seven-month delay between the weather occurrence and the weather it generates. In this case it would be a lack of rain, particularly in the Malaysian state of Sabah when palm trees were pollinating.

Also, the report pointed to labour issues with plantations unable to hire sufficient numbers of workers.

The USDA’s official estimate of Malaysian palm oil pegged production for 2024/25 at 19.80 million tonnes, up one million from the year before, with area harvested bumping up 50,000 hectares at 5.60 million.

The Kuala Lumpur desk forecast Malaysia’s palm oil exports for 2024/25 at 15.70 million tonnes, down 500,000 from the previous marketing year. However, ending stocks are to rise from 2.25 million tonnes in 2023/24 to just short of 2.40 million this year.

The attaché pointed to India’s recent 22-point hike in its import duty on foreign palm oil to 27.5 per cent, along with a “lack of price competitiveness compared to other edible oils.”

Meanwhile, the department placed 2024/25 exports at 16.50 million tonnes, up 200,000 from the previous year. The carryover was calculated at 2.18 million tonnes, down from 2.22 million.

The USDA is scheduled to release its next supply and demand report on Oct. 11, It’s unknown if the department will incorporate the attaché’s estimates in the report.

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Jerry Klassen of Winnipeg-based Resilient Commodity Analysis said that winter seasonal weakness is partially to blame for canola prices hitting lows unseen since June. However, canola’s record short position by the funds isn’t leaving much more room to sell. 

“(The funds) are running out of selling power. That selling may be easing up here and could ease up (later),” he said. “Sometimes you could see some volatile swings, but the overall trend remains lower.” 

Klassen added that a widening of the March/May spread put pressure on the nearby March contract, as well as declining crush margins. Vegetable oil markets also became weaker due to increased palm oil production in Indonesia and Malaysia, as well as Argentina’s soybean crop more than offsetting losses from Brazil. 

“We have some problems in Brazil, but it looks like the (soybean) crop there will be about the same size as last year. Despite the adverse weather, it doesn’t look like we’re seeing a significant year-over-year decline in production,” Klassen said. 

He is also hearing estimates for United States soybean seeded area later this year to be four million to five million acres more than in 2023, adding to the crop’s bearish outlook. 

“We’re also looking for a marginal increase in canola acres for new crop,” Klassen added. “The larger potential new crop (canola) production is overhanging the new crop supplies. That’s also setting a negative tone…The trade is coming to terms here that farmers have their seeding decisions ready and it looks like there’s going to be an increase in canola acres and a sizeable increase in U.S. soybean acres.” 

While dry weather in the Prairies this winter could impact canola production this year, Klassen added it’s too early to say if there will be a major effect. 

If the Canadian dollar stays at current levels, he believes that the March contract can go down to as low as C$600 per tonne, with little signs of support. 

“It’s really hard to argue for a bullish case,” Klassen said. “When we get to the end of March, when we’re going to that seeding period, usually the farmer selling tends to subside and we tend to get a bounce in the spring time frame. But that’s dependent on how conditions are…The demand (right now) looks pretty sluggish.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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Now, thanks to another global crisis disrupting supply chains, vegetable oil is getting the same treatment in some parts of the world.

“There’s already a strong demand for vegetable oils generally, and any impact on the availability of oils on the global market is only going to add pressure to that shortage,” said Jim Everson, president of the Canola Council of Canada.

“The world economy is growing after the pandemic, and as those economies grow, the demand for products increases. It’s not just the current circumstances — it’s a longer-term trend.”

Russia’s invasion of Ukraine halted sunflower oil exports from both countries. Together they account for roughly 60 per cent of global sunflower oil production. And Ukraine produces most of the sunflower oil used in the United Kingdom — where major retailers such as Tesco and Waitrose are limiting shoppers to two or three bottles.

And supplies tightened further in late April — when faced with high prices and dwindling supplies, Indonesia (the world’s largest palm oil exporter) put a ban on veg oil exports.

“Palm is the most voluminous oil traded in the world, so when the growth of that sector slows down, the demand for other vegetable oils increases,” said Everson, adding that was already happening prior to the war in Ukraine.

And, of course, Canada has less canola oil to sell — last year’s crop hit a 14-year low at just over 12.5 million tonnes (versus 19.5 million tonnes in 2020).

“Canadian canola is responsible for 65 to 70 per cent of the world trade of canola or rapeseed, so when we have a really bad crop, that impacts the market,” he said. “Canola prices are high because of the shortage, and because of the challenges there, that’s unlikely to be a short-term thing. The fundamentals behind the supply-and-demand situation are in support of that.”

And that could be good news for Canadian canola growers.

“Canola oil doesn’t really compete against palm or sunflower oil because of the freight, but if the Ukrainian sunflower oil doesn’t come through, then they’ll start looking here to meet their demand,” said Ward Toma, general manager of Alberta Canola. “The longer this carries on, the greater the chance that it’s really going to boost prices.”

Rationing demand

“The country that would probably be impacted the most by both of these events is India. They’re a huge, huge importer of low-cost vegetable oils from that part of the world,” said Toma.

“If you take that away from them, they’re going to have to start buying up more expensive oils in the short term — soybeans or canola from North America. So short term, there might be a little boost to canola markets as people panic a bit and start looking for alternatives.”

But that will just encourage some countries to increase veg oil production, he said.

“India has made a long-term pledge to increase palm oil production in their country. So that might actually limit the scope of future demand that we might get out of that marketplace.”

So any boost to prices will be short lived — or might not happen at all, Toma predicted.

“If we have extra demand coming outside of the normal, it might be just too expensive for that demand to get filled. That’s what high prices do — they ration demand.”

Moreover, big increases in the price of fertilizer, fuel and other inputs mean margins haven’t increased despite record-high canola prices, he said.

Last year’s drought has also reduced expected canola acres for this year, with StatCan’s late-April forecast predicting a seven per cent drop this year.

“It’s still very dry throughout large chunks of the canola-growing regions of the Prairies,” said Toma. ““And when you’re putting canola in, that’s a lot of money… and if the risk of not getting a crop increases because they have no water, they might not want to take on that risk.”

If StatCan’s survey proves accurate, it will be even more important that this year’s crop is “normal or better than normal,” said Everson.

“We’re hoping… that we don’t have a repeat of the heat dome we had last year and that we don’t have another short crop,” he said. “We hope to get back to those normal circumstances, and when we do, the world is really going to be looking for Canadian canola because of the high demand that’s out there.

“I think the signal to growers is a good one for canola, so we’re optimistic about acreage this year.”

Supply chain disruptions

“As we get ready for our crop in 2023, there’s already issues around container access and fertilizer access and pricing,” he said. “We always seem to have challenges with rail service, and with the economy growing, there’s going to be other commodities using the Canadian rail service this fall.

“We’re going to need to make sure we have really excellent logistics for our rail service this year.”

Equally important is ensuring farmers can access inputs in the fall and next spring for next year’s crop, especially with recent government discussions about reducing greenhouse gas emissions from nitrogen fertilizer, he added.

“We need to be sure that as an industry, farmers continue to have access to the inputs that they require to grow our product,” said Everson. “Nitrogen fertilizer is critical to canola, so we have to be sure that our efforts to reduce the emissions that come from liquid nitrogen use do not mean that farmers cannot have access to nitrogen.”

In the meantime, canola producers should keep an eye on the markets to take advantage of any pricing opportunities that crop up.

“I think there will be some short-term shocks to the marketplace,” said Toma. “On the face of it, from a market standpoint, it looks like there’s going to be an opportunity — and the opportunity does exist if farmers can capitalize on it.”

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Winnipeg grain firm Richardson International announced last Tuesday it has bought full ownership of Control Chemical Corp. for an undisclosed amount.

Control Chemical is billed as a specialized manufacturer of environmentally safe drilling fluids and proprietary vegetable oil-based lubricants, used in mining and resource extraction processes such as diamond drilling, horizontal directional drilling and rotary and percussive drilling.

The company’s Matex products include downhole lubricants, specialty polymers, foams, tool lubricants, blast hole stabilizers, thread compounds and non-alcohol freeze control fluids.

Given their capacity to withstand high temperatures, canola oil-based lubricants are “recognized for extending tool lifespan, optimizing production processes, and improving drilling core recovery and pathway stabilization,” Richardson said.

“This partnership will be beneficial to both companies, as historically speaking, Richardson is our largest supplier of crude canola oil,” John MacPhail, Control Chemical’s retiring principal, said in Richardson’s release.

“With petroleum oil prices increasing, we are in a unique position to reach new and more expansive markets for environmentally safe downhole, torque-reducing lubricants.”

For Richardson, which has been a minority shareholder in the company and supplied it with raw ingredients for “over 30” years, the deal marks “a unique opportunity to diversify our business and expand into innovative products derived from the core commodities we handle,” Darrell Sobkow, Richardson’s senior vice-president for processing, food and ingredients said in the same release.

Richardson’s oilseed crush plant at Lethbridge, Alta. will keep on supplying crude canola oil stock for Control Chemical products, which it makes at a 50,000-square foot plant in southeast Calgary and sells worldwide. — Glacier FarmMedia Network

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One trader, however, warns that canola contracts may be in for a mercurial few weeks.

“We’re clearly in a weather market that is extremely volatile,” said Errol Anderson of Calgary-based ProMarket Communications. “With this extreme hot weather coming right at flowering, definitely we have yield damage.

“The market is starting to reflect that… It’s been quite explosive this week, but when we get explosiveness, we’ll also get selloffs as well.”

The vegetable oil market, which plays a major role in canola prices, has recently seen downward pressure, as weather conditions in the eastern U.S. Midwest have seen more moisture than in Western Canada.

On the other side, a weakening Canadian dollar has also brought support to canola.

As canola prices rise sharply, so too they can fall just as quickly, according to Anderson.

“If the canola market does relax, we’re going to see a selloff,” he said. “But, the unpredictability of this market is very, very difficult. Trying to predict day-to-day movement is extremely difficult.

“Tighten up your seatbelt. It’s going to be a wild one.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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Despite rains in Western Canada over the past three weeks, providing some relief for canola crops and triggering fund liquidation on the markets, carryout remains very low, with warmer temperatures exacerbating the situation.

For these reasons, former trader and Winnipeg-based market analyst Wayne Palmer believes the canola market will have nowhere to go but up over the next week or longer.

“We ran up because there are no backup (canola) supplies this year. Carryout is at a dangerous level. The world is looking at Canada to replenish canola supplies,” he said.

Canola has also followed the lead of the Chicago soy complex. While rains in the U.S. and other soybean-growing regions can decouple the market performances of both crops, the vegetable oil market remains a major influence on canola prices. Soyoil has rallied more than 400 points this week alone.

“There are dangerous levels of vegetable oils, soybeans and corn globally, as well,” he said, adding that weather is still the main topic of conversation among canola growers and buyers.

“We are now 100 per cent focused on weather and this is only the last week of June. We are going to get into, as we get into climate change, crazy, smoking-hot weather… We’ve got no place to go but to rally because, then you ask yourself the question, ‘Who’s going to sell it?'”

Without timely rains, canola crops would not be in a good situation, which Palmer equated to a “C-average.” Even with an average crop for the 2021-22 growing season, he expects canola prices to remain elevated into 2022.

“Now that you’ve got crusher buying, there’s just no selling here right now until this crop is 75 to 80 per cent made and it won’t happen until the beginning of August,” Palmer said. “We’re going higher before we go lower.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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Soybeans got an additional boost from surging palm and soyoil futures. But forecasts for beneficial rains in the U.S. Midwest capped rallies by supporting expectations for large corn and soy harvests.

Wheat futures drifted lower on profit-taking after climbing sharply since late June.

Chicago Board of Trade November soybeans settled up four cents at $8.95 per bushel after reaching $8.96-1/4, its highest price since July 10 (all figures US$).

December corn ended up 2-1/4 cents at $3.39-3/4 a bushel while September wheat fell 1/2 cent to finish at $5.34-3/4 a bushel.

For the week, CBOT November soybeans rose 4-1/4 cents a bushel, or 0.5 per cent. December corn fell five cents, or 1.5 per cent, its second straight weekly decline as U.S. crop weather improved, and CBOT September wheat rose 3/4 cent, or 0.1 per cent, to eke out a third straight weekly advance, reflecting fears of tightening global supplies.

CBOT soybeans advanced on Friday as the U.S. Department of Agriculture, through its daily reporting system, confirmed sales of 126,000 tonnes of U.S. soybeans to unknown destinations. The sale brought the total for U.S. soy sales announcements this week to 1.5 million tonnes, including about one million tonnes to China.

USDA has also confirmed sales of three million tonnes of U.S. corn to China since July 10.

“Corn purchases by China are up and could increase further due to attractive prices,” consultancy Agritel said.

Rising global vegetable oil markets lifted allied CBOT soyoil futures, with the benchmark December contract reaching its highest level since early March. Malaysian palm oil futures recorded their biggest weekly rise in 3-1/2 years as heavy rains in Indonesia, Malaysia and China stoked supply concerns.

Traders noted that the National Oilseed Processors Association this week reported that soyoil stocks among its U.S. members fell more than expected during June, to 1.778 billion lbs., from 1.88 billion at the end of May.

“The NOPA soybean oil stocks number was a little bit light, even with the big crush. And with the new highs for the move (in CBOT soyoil futures), you are going to get technical buying,” said Dan Cekander, president of DC Analysis.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago; additional reporting by Gus Trompiz in Paris and Colin Packham in Sydney.

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The November contract hit an intersession high of $482 per tonne on Wednesday, but settled below the $480 mark.

“You can’t discount at least the potential of this time being the breakout time, but for right now it (resistance) continues to hold,” MarketsFarm Pro analyst Mike Jubinville said.

Gradual strength in outside vegetable oil markets, including European rapeseed futures and Chicago Board of Trade soyoil, were supportive influences, and Jubinville said it would take continued gains in those outside markets to keep canola pointed higher.

Weather conditions in the United States and their influence on the CBOT soy complex will likely be a major driver over the next few weeks, with Canadian weather also being followed closely.

Excess precipitation may lead to issues with slow development and possible disease issues in parts of Western Canada. However, Jubinville said it was too early to cut yield estimates.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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Solid demand, from both exporters and domestic crushers, has kept canola well supported, while a firmer tone in world energy and vegetable oil markets should also add some upside momentum, according to MarketsFarm Pro analyst Mike Jubinville.

While some overbought signals were starting to appear on the charts, “the trend is still there,” he added.

The July canola contract has moved above its 20- and 40- day moving averages, but is now testing the 100- day and 200-day averages.

Looking at a weekly chart, he placed resistance in the July contract at around $480 per tonne, and noted prices would have to move above that level to signal a sustained uptrend.

“I’m still optimistic that there may be some more room to be realized here, but I’ll respect this $470-$480 area as a potential selling opportunity.”

Jubinville said a fresh bullish catalyst would be needed to break above that resistance, with the market likely stalling out if that doesn’t materialize.

Weather through the growing season could be one such catalyst, as spring seeding moves along and attention turns to North American growing conditions.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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The May canola contract, which had started 2020 trading in the $490 area, touched a low of $455 per tonne on Tuesday and settled Wednesday at $456.50.

World vegetable oil markets have found themselves in a steady downtrend over the past two months, after closing out 2019 at multi-year highs.

In addition, uncertainty over the “black swan” COVID-19 coronavirus “has created a real risk-off attitude across commodities in general, and canola is caught up in that,” said analyst Mike Jubinville of MarketsFarm Pro.

While more downside is possible, Jubinville expected the lows may be in for now, barring fresh bearish developments on the virus-front.

While global transportation flows may be affected, “the demand for food is still the same,” he said.

That said, a rally is also unlikely, according to Jubinville, who pointed to a lack of developments on Chinese purchases of U.S. soybeans as a bearish influence.

Blockades disrupting rail traffic across Canada have also thrown more uncertainty into the mix.

“It’s a sideways-trending marketplace,” he said.

Seasonal price flows could help bring prices back to the upper end of the range over the next few months, he said, but added that a more sustained rally was unlikely in the current environment.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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