Trade will likely discount a final Canada production expectation in a range of 17 – 18 MMT as the conclusion to growing season had some yield offsetting parts. Setting aside individual differences, whatever the number, when perception of crop size stops getting smaller and instead becomes “it is what it is”, canola would be ripe for a sell-off correction because discretionary demand still requires periodic large volume participation from China amid a reminder that cheaper offshore choices and origins exist. Basically a version of past two years but without the early hefty export commitment, and think that cross-road risk is now. As such, sustained bullish momentum needs outside leadership help, like ongoing Russia port bombing or US soy drought.
Domestic Refined Bleached Deodorized vegoil basis levels are firming. This is the main feedstock that Renewable Fuel processors use until pre-treat capacity ramps up.
Canada canola price discovery has moments when it falls apart when reliance on discretionary offshore demand is needed. Canada canola also has leadership moments when China is buying; not case today. Canada canola also has leadership moments when timing overlaps with a North America domestic event, like a deeper Renewable Fuel feedstock reload. Amidst all the supply what-ifs, latter would seem to be the main fundamental that’s quietly propping up US soyoil and ICE canola right now.
Nice to have these because that’s what helps generate independent moments of frothiness to a Canada supply/demand that can only consume about 11 MMT of canola that way (crush and US exports). Rest of supply won’t fly at prevailing relative math.
Small South American crop is a known-known, but the world is adjusting to the reality that it might need as much Canadian origin canola as logistically possible to accommodate new risks of what happens if (i) Ukraine 2.5 MMT winter planted canola crop faces input or harvest impairment, (ii) Ukraine cannot plant or logistically manage all or part of 7 mil hectares of spring sunflower plantings. Most of sunny area is in E ½ of Ukraine, in the war zone. Know that Ukraine exports about 6 MMT of sunoil per year and uses about 0.5 MMT for domestic. If 6 MMT was a canolaoil, at 42% oil would required 14 MMT of canola. At the margin, that is massive…and that right there is the reason why new crop canola is trending the way it is. Main short term risk would be an immediate truce to war or a world wide government effort to relax biofuel mandates. Unprecedented times requires unconventional thinking.
Canola price discovery has many moving parts, subsets whose individual detail will never become transparent. Therefore, must constantly mine for high-level clues. While the newsflow tends to focus on headlines such as South America weather, Matif rapeseed futures & soyoil futures, to me, the most important canola demand sign is to follow North American vegoil basis levels. Price doesn’t lie and provides a demand situational summary.
When needed, particularly when soyoil isn’t, canola crushers have been able to adjust canolaoil premiums to maintain good-enough positive crush margins. A price-times-volume trade-off occurs. Renewable Fuel and food lugs the highest propensity to pay whose importance with rises with small crop. Vegoil basis direction is a must know if want to make an informed decision. Charts have just been updated. Please contact me if would like more information.
Renewable Fuel is a game changer. You needn’t look any further than the recent four Canadian crush facility announcements that will add 5.5 MMT of crush capacity in 2024. Current vegoil price grid sports massive divergence between world and North America, with monster refining premiums also having much to say about valuation. Yet price discovery isn’t only about Renewable Fuel. We must be aware of and try to understand the value measuring differences and demand percentages involved for that segment of canola demand that can tap into the Renewable Fuel space versus that segment that basically extracts value offshore. This has been researched. Please contact me for more detail
Renewable fuel is mainly a US domestic development that has been with us for some time, but whose respective contribution and potential vegoil feedstock demand shifts are quietly accelerating under our nose. What makes the situation unique is that it is either poorly understood or is on the radar of the minority. Driven mainly by California policy today, it has important ramifications to any Canadian with a canola interest. This has been researched with fresh insight. Please drop me a an email for more more detail.