Big U.S. soybean crop weighs on canola prices

Analysts say Canadian canola prices are being weighed down by a massive soybean crop in the United States, but there is a glimmer of hope south of the border.

The U.S. Department of Agriculture estimates U.S. soybean production will reach a record 124.9 million tonnes in 2024-25.

That has pushed prices 18 per cent below the average estimated cost of production in that country.

“We haven’t seen that level of unprofitability since 2018-19,” DTN lead analyst Todd Hultman said during the latest installment of the 2024 DTN Ag Summit Series.

“That’s the time we were in a trade dispute with China, and they quit buying soybeans for a while.”

He believes today’s scenario is “nowhere close” to the bearishness of that situation because there is still reasonably good demand for soybeans.

“The worst thing to happen to a market is losing demand. Supplies usually work themselves out over time,” said Hultman.

The USDA is forecasting 15.25 million tonnes of ending stocks, compared to 24.49 million tonnes in 2018-19.

Hultman noted that the soybean market still rallied during the tariff dispute with China, climbing 18 per cent from the lows set in 2018 and 25 per cent from the lows of 2019.

A 19 per cent rally from today’s values would take soybean cash prices to US$10.92, bringing canola along for the ride.

He thinks that is a conservative estimate based on the volatility witnessed in previous years.

“Hopefully we’re near the low end of the pain point here,” he said.

Another glimmer of hope is that yield and production numbers are still up for debate. Nothing will be firm until October, so there is still time for the crop to get smaller on paper.

Hultman thinks there is “some reckoning to do” with this year’s crop in terms of damage caused by wind, hail and flooding.

DTN’s August yield estimates are lower than the USDA’s in all the important soybean-growing states, such as Illinois, Indiana and Iowa.

The USDA’s first stab at Brazil’s production could be high as well, with a record 169 million tonnes forecast.

He has heard reports that farmers in Mato Grosso may be cutting back on acres due to the low prices.

New crop sales of U.S. soybeans have been concerning, starting out the year down 45 per cent compared to last year.

However, prospects for future sales have improved markedly because the f.o.b. price for U.S. soybeans in New Orleans is now 57 cents per bushel cheaper than Brazilian soybeans in Paranagua.

“We have seen soybean sales pick up,” he said.

The U.S. recently sold 4.85 million bushels of new crop soybeans to China and another 8.8 million bu. to Mexico.

Soybean processors are making big money because the value of the meal and oil they produce are holding up, while soybean values are dropping.

Crush activity in 2023-24 was up 5.2 per cent compared to the previous year.

However, there are concerns on the horizon about that portion of soybean demand. Crush premiums look like they could start shrinking in January 2025.

That is when proposed revisions to California’s low carbon fuel standard could kick in, which would see a 20 per cent cap on the amount of soybean and canola oil that could be used in the biodiesel and renewable diesel sold in that important market.

“I’m sure that has been a big disappointment to a lot of folks,” said Hultman.

If it happens, it would be a big blow to the soybean sector, which has become increasingly reliant on that market.

“We need profitability from the biofuel sector to counter the decade-by-decade loss of exports in the world to basically Brazil and Russia,” he said.

Hultman’s parting advice to farmers is to keep in mind that rallies still happen in years of excess supplies.

He thinks that will happen once the market stops focusing on the big harvest and starts appreciating the strong demand dynamic out there.

“Surprises happen,” he said.

“You just never know what’s going to be around the corner.”

Tags: canola, prices, United States, soybeans, Canada, Production, crop, demand, estimate