The canola market is about as cold as the current Saskatchewan weather.
Threats of US tariffs, potential changes to American biofuels policy and concerns about Chinese countervail duties have pushed canola values below what they should be based solely on the current supply and demand situation.
Ken Ball is a senior commodity futures advisor with Ventum Financial in Winnipeg. He says the current situation is a “complicated mess” with canola and soybean oil being undervalued. “It’s a situation where these are two markets that would normally, in a normal market situation, we would expect canola and bean oil would be the only markets really showing some good strength and yet they are the only ones that are really going down and that’s unfortunate but hopefully, the biofuel situation is probably the biggest of the two and if that can be maintained at its current situation, its current levels of biofuel usage then the exploding exports in soybean oil should start to pull that price up, but there’s a lot of unknowns there – we just don’t have any idea what’s going to happen with this new U.S. government, it’s a very erratic situation.” Ball said.
Ball is unsure whether Canada, or any other country, has any allies within the incoming Trump Administration on the biofuel file. “Everybody is a bit up in the air. I think the tariff thing is largely just a threat for negotiating purposes but we can just never be quite sure. The rational expectation on the biofuel program, if they’re talking about perhaps reducing the tax credit to blenders would be extended for maybe six months and have some negotiations and sit down and work out a new plan – that would be the rational business-like way to proceed, but again, rational and business-like (are) not words that many people are associating with the new government at this stage.”
And there is nothing new on China’s anti-dumping investigation of Canadian canola imports, which Ball described as China playing games. “There is no investigation going on. They just want to hang that over our heads,” Ball said. “What they want to do is hang that over the canola market to try to keep prices depressed while they scoop up all the canola they needed at 20,40, 50 dollars a ton cheaper than they otherwise would.
At least we did have a period of strength in canola there after the initial announcement by China about the probe into dumping. We did get a nice 100 dollar rally and…growers did move quite a bit of canola but the expectation even there was that canola should have been able to go a bit higher so it probably might have held some people back.”
Upcoming Stats Canada report
Statistics Canada will release its first estimate of 2024 crop production on Thursday, using data gathered from on the ground sources, including producer surveys. Many anticipate a sharp reduction from the last Statistics Canada estimate made in October using satellite data only.
Ball heard others believing the estimate to be significantly below 19 million tonnes and confidence in Stats Canada’s reports are “very low”. He says in the last two years the number of people surveyed appeared to be close to its model number, leading to considerable changes to its estimate later on. “If they happen to leave it close to unchanged or only down slightly there’s going to be suspicion that they’re just not doing the job the right way or there’s something going on there.
The range of estimates I’ve heard people (say) as low as 17 (million tonnes) but 17.5 to 18.5 (million) seems to be the range of most traders estimates and if the crop was dropped by a million tonnes – given that our exports have been running fairly solid and our crush is going full-tilt, and assuming and hoping that there is no political disruption down – we could be looking at a very tight canola market by spring.”
Ball believes the canola market was in the process of factoring in a tighter supply before the “potential political disruptions” occurred and says if the market can avoid these disruptions, he believes the price of canola could go above $700 a tonne. “Whether some of these other factors will intervene or prevent that we still have no idea, it’s very difficult to tell.”
(With files from CJWW)
