Canola Market Trends: Insights and Updates from the Northern Canola Growers Association
By BARRY COLEMAN, Northern Canola Growers Association
Canola prices have shown signs of stabilization after a downward trend following the highs seen in June. Market analysts report that the latest futures prices mirror the levels observed a year ago. This change can be attributed to the waning harvest pressure on the canola market. Several factors—including increased production in Canada, Chinese tariffs on Canadian canola, and a softening soybean market—are influencing current market dynamics.
Export Challenges
In 2022, Canada experienced record canola exports to China. However, this year, those numbers have plummeted to less than half of last year’s levels, which suggests an increasing carryout of canola for the foreseeable future. The stark contrast in export figures raises concerns about market saturation and future pricing mechanisms.
Changing Production Estimates in Europe
While last year saw the European Union (EU) reducing its canola production estimates, the narrative has shifted in 2023, with the EU now increasing its production forecasts. This is occurring alongside a dip in biofuel consumption within the EU, dampening overall demand for oilseeds. The interplay of these factors creates a complex environment for canola’s place in the market.
The Biofuel Landscape
The U.S. Energy Information Administration (EIA) recently reported a drastic reduction in the usage of canola oil for biofuel production. In July, only 219 million pounds of canola oil were utilized, significantly down from 546 million pounds in the same month last year—a staggering 60% decrease. Over the first half of the year, total consumption of canola oil was pegged at 1.25 billion pounds, a marked drop from 2.68 billion pounds in the same period of 2022.
These figures highlight the adverse impact of the 45Z tax provisions on the canola oil market. The expected uptick in canola oil use anticipated by the USDA has yet to materialize, and the industry remains heavily dependent on domestic volume obligations, which are still awaiting finalization by the Environmental Protection Agency (EPA).
Soybean Oil Comparisons
In contrast, the usage of soybean oil for biofuels has not seen as significant a drop, reporting a consumption of 6 billion pounds over the same timeframe—down 20 percent from last year’s 7.2 billion pounds. Interestingly, soybean oil usage over the past three months has nearly matched levels from the previous year, in stark contrast to canola oil, which has not regained its footing.
Global Production Insights
On the global front, the USDA’s Foreign Agricultural Service has provided updates on Chinese canola production, predicting figures well below the Chinese government’s estimates. The USDA maintains an estimate of 15.9 million metric tons (MMT) for Chinese rapeseed production, whereas the government claims it will reach 17.1 MMT. It appears that China may have a vested interest in inflating their production estimates amid a trade conflict with Canada, creating downward pressure on canola prices across both Canada and the U.S. Notably, private forecasters in China provide even lower production estimates.
Domestic Challenges for Crushers
Due to reduced production in China and stringent restrictions on canola imports, local crushers in the country are facing severe margin pressures as market conditions tighten. The ongoing trade dynamics are reshaping the landscape for global canola producers, emphasizing the need for adaptability.
Indonesia’s Biofuel Mandate
Switching gears to Southeast Asia, Indonesia has announced plans to increase its biofuel blending mandate from B40 to B50. This move is expected to absorb an additional 1.2 billion gallons of biofuels in the market, aiding in the country’s goal to reduce import dependence. As the world’s largest palm oil producer, Indonesia’s surging domestic use of palm oil could positively impact the broader oilseed markets.
Harvest Progress
Back in North America, crop progress reports released on September 28 revealed that 75 percent of North Dakota’s canola crop had been harvested, with prospects indicating that the harvest would reach completion around October 8. The crop year closed with 71 percent of canola rated in good to excellent condition, slightly up from 69 percent the previous year.
Sustainable Practices
An essential observation from the Northern Canola Growers Association is the importance of crop rotation. After years of promoting the planting of canola every three to four years to mitigate disease and insect pressure, growers are now reporting decreased yields from shorter rotations. This reinforces the significance of sustainable cropping practices and Integrated Pest Management in maintaining healthy canola production.
Market Pricing Trends
As of October 7, November ICE canola futures closed at $615 per metric ton, reflecting a rise of $7.50 on the day, albeit down $3 over the prior two weeks. Meanwhile, January contracts closed at $628 per metric ton, also rising but seeing a similar decrease over the last fortnight.
Local cash prices on the same day ranged from $18.20 to $19.80 for October and November deliveries, showing a broader price range than observed in recent weeks. Prices for December and January delivery were noted between $19.01 and $20.25, down slightly as well.
Upcoming Events
Looking ahead, the Northern Canola Growers Association is set to host its Annual Meeting in Minot, N.D., alongside the U.S. Durum Growers Association during the Canola/Wheat Outlook & International Durum Forum on November 5-6 at the Clarion Hotel. Mark your calendars for this significant event.
By structuring these insights into clear, engaging segments, stakeholders can gain a nuanced understanding of the current canola market landscape and its forecasting implications.