Canada Markets

The most recent USDA Oilseeds: World Markets and Trade report forecasts global oilseed production to fall .7% in 2015/16 from last year's record global production. While soybean production is forecast to be slightly higher, drops in production in other oilseeds such as canola has resulted in an overall drop in production. Global oilseed supplies are expected to rise 3% in 2015/16, given record carry-overs.

Current forecasts show global rapeseed/canola production to fall 4.9% or 3.5 million metric tons in 2015/16 to 68.12 mmt. This would be the first drop in global production in five years after growing from an estimated global production of 60.56 mmt in 2010/11 to a record 71.66 mmt estimated for 2014/15. The largest estimated cuts in production are seen in China (400,000 mt), European Union (2.655 mmt) and Canada (755,000 mt) according to USDA data.

Current USDA estimates for global ending stocks in 2015/16 indicate a drop of 23.4% to 5.461 mmt, a three-year low and well below both the five- and 10-year averages for global carryout. It's interesting to note that the USDA's 2015/16 carryout is based on a reduction in rapeseed/canola demand of 2.2%, which would be the first annual drop in demand seen in nine years. Between 2006/07 and 2014/15, global demand rose an average of 3 mmt or 5.6% annually. The USDA sees lower consumption based on the lower production numbers and increasing competition from other oilseeds, while total demand for all oilseeds is expected to climb.

Canada's domestic crush is expected to increase slightly to 7.4 mmt in 2015/16 given increasing domestic capacity, according to AAFC's recent estimates. Tightening supplies are expected to lead to a 1.2 mmt drop in exports in 2015/16 to 8 mmt, with AAFC's ending stocks expected to fall to 500,000 mt, the lowest ending stocks seen since 1997/98.

The attached chart shows the trend in both global and domestic stocks/use ratios and their impact on the crop year's average futures price, based on the crop-year average price (Aug 1 through July 31) calculated from the continuous daily chart. The global stocks/use ratio is forecast to fall to 7.8% in 2015/16, a three-year low and well-below both five- and 10-year averages, based on USDA data. This could possibly be revised lower in the future given that 1) the USDA is forecasting a drop in consumption despite a global rise in vegetable oil consumption, which may or may not be possible, while 2) the USDA is forecasting Canada's ending stocks for 2015/16 at 1.630 mmt, as compared to recent estimates of 500,000 mt from AAFC, which could lead to a further tightening of global stocks.

The attached chart shows the annual average price in the ICE Canada canola future, calculated from the continuous daily chart over the course of each crop year, while compared to the global stocks use ratio for canola/rapeseed (blue line) as calculated by USDA data. The red line indicates Canada's domestic stocks/use ratio, as calculated with Statistics Canada data along with AAFC's estimates for 2014/15 and 2015/16.

Should current estimates come to fruition, both global and domestic stocks/use ratios will be lower in the upcoming crop year than seen in 2012/13 when the ICE Canada future averaged $610.99/mt, 39% or $172/mt higher than the current crop year-to-date average of $438.99/mt.

The challenge will be for canola to rally as a result of tight fundamentals given bearish soybean fundamentals.

DTN 360 Poll

The new DTN 360 poll looks at Statistics Canada's acreage estimates for 2015 suggesting that eastern Canada will plant more corn and less soybeans than in 2014, counter to the expected move to be made by U.S. farmers. What do you think is the primary driver of this decision? You can weigh in with your response on DTN's poll found on the lower right of your DTN Home Page.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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