Australia’s “monstrous” canola harvest has Ken Ball adjusting his Canadian supply and demand numbers.
The Australian government’s new official estimate for its 2022-23 crop is a record 8.3 million tonnes, up from the December forecast of 7.3 million tonnes.
“Our (Canadian) exports are going to be well down from our earlier projections because of the monstrous Australian crop,” said the PI Financial analyst.
“We knew that number was going to go up, but I don’t think anybody thought it was going to go up by a million tonnes.”
Ball believes Australia could export 6.5 million tonnes of canola.
The country’s more traditional export volumes are in the two to three million tonne range.
“That’s a huge chunk of business that they’re going to take from us,” he said.
Ball doubts Canada will achieve Agriculture Canada’s export target of 8.6 million tonnes.
He is now forecasting 1.5 to 1.8 million tonnes of carryout, which at the midpoint is slightly more than double Agriculture Canada’s forecast of 800,000 tonnes.
That carryout could make supplies comfortable for the coming crop year given Agriculture Canada’s forecast of 18.5 million tonnes of production.
Another bearish factor is that soybean oil futures prices have been slumping of late, falling about five cents per pound over the past couple of weeks.
Canola prices are closely tied to soybean oil values.
Soybean meal prices are approaching record levels, which are spurring crush around the world. That is resulting in some excess soybean oil production, which is weighing down prices a little.
But soybean oil prices are still elevated compared to competing oils.
The U.S. Department of Agriculture dropped global soybean oil trade more than two percent in its latest supply and demand estimates as high Argentine and U.S. prices shift demand to palm oil, canola oil and sunflower oil.
And it noted that soybean oil prices could soon be on the rise again.
The Government of Brazil is scheduled to meet in March to decide on what to do with its mandatory biodiesel blending rate, which sits at 10 percent.
The original plan was to increase the mandate to 15 percent in April.
“If the blend rate is raised, then exportable supplies (of soybeans) could be lower,” stated the USDA.
“This would further push up soybean oil prices and cause importers to rely more heavily on other vegetable oils.”
The USDA report also contained bullish news for soybeans. The report surprised the market by dropping Argentina’s soybean production to 33 million tonnes, down from its February estimate of 41 million tonnes.
The new forecast is well below the previous five-year average of 46.4 million tonnes and that was supportive of soybean prices.
However, Ball said the market seems to be ignoring another important factor that recently occurred in the South American country.
Argentina’s government offered growers a special deal late last year and early in 2023, encouraging the release of some of the country’s massive stockpile of the crop.
“Those stock estimates by some are 40 to 50 million tonnes of beans that Argentina’s growers are storing,” he said.
Ball said 16 to 18 million tonnes of those stored beans were pulled out of stockpiles and shipped around the world because the government wanted to collect the export taxes on those soybeans.
“That’s extra supply, which, to some degree, is offsetting the lower crop,” he said.
“If China got their hands on 10 or 12 million tonnes of those Argentine beans, that’s 10 or 12 million tonnes they don’t have to buy from the States or Brazil.”
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