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"Canola prices have been struggling this crop year to the frustration of producers who had been expecting a seasonal post-harvest price improvement," says Neil Blue, provincial crops market analyst with the Alberta government. "There are a number of factors affecting the canola market."
Canola prices started to rise following the 2021 drought in Alberta and some other oilseed producing countries. Post-Covid economic improvement was also a demand supporting factor.
Figure 1. Alberta Canola Price Average $/T
Source: Alberta Agriculture and Irrigation
Following the high prices of the 2021-22 crop year, world oilseed production rebounded. Australia produced a record canola crop last year and was a major competitor on the world market. Brazil produced a record soybean crop earlier this year and is currently projected to produce about the same volume in 2024, despite some adverse weather to date.
"Although a certain level of Canadian canola demand is stable, at high prices the more flexible demand will move to less costly alternative vegetable oil sources," explains Blue. "A canola negative so far this crop year is lower Canadian canola exports. According to weekly Canadian Grain Commission data, canola exports at the one-third point of this crop year are down from the year ago pace by 620,000 tonnes, or 23%. Fortunately, Canadian crushers have used 300,000 tonnes more canola than a year ago to date, but total canola usage is still lower."
Statistics Canada in early December bumped up its estimate of 2023 Canadian canola production by one million tonnes to 18.33 million tonnes. Although the higher production estimate was expected, confirmation of the higher production with exports lagging last year implies the potential for a sharp rise in canola carryover.
"The major positive for canola prices is continuing strong crusher demand. Crushing margins remain profitable, implied by the estimated values of canola meal and canola oil relative to canola seed. Both canola product markets are well developed."
Canola oil demand has been growing with the increasing demand for renewable biodiesel, and Canadian canola oil exports have been increasingly bound for the U.S. However, because a portion of canola’s market via canola oil is tied to biodiesel, it is subject to the price of diesel and crude oil. Both of those markets have been weakening lately, on ideas that supply will outstrip demand as world economies slow into 2024.
"So, during the winter into next spring, for Canadian canola prices to sustain improvement, continued strong crushing demand and improved export demand is needed. Crop concerns in South America may redevelop and provide at least a temporary price boost. Canola basis level changes provide a good signal of canola market condition," says Blue.
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Contact
Connect with Neil Blue for more information.
Phone: 780-422-4053
Email: [email protected]
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