Stefan Vogel

What’s in store for canola’s ‘big brother’? – Rabobank Global Perspective

When it comes to soybeans – canola’s ‘big brother’ on global markets – supplies in 2023/24 are outpacing demand.

RaboResearch general manager Stefan Vogel said strong global production volumes combined with higher inventories have pushed supply this year above levels that global demand – especially from China – can absorb. “And this will see global inventories rise further,” he said.

With China having its largest-ever soybean production in 2023/24, imports are likely to stagnate, Mr Vogel said. “Of note, China appears to intend to reduce the share of imports it is taking from the United States, the world’s second largest exporter of soybeans. Though this makes sense as domestic processing of soybeans for biofuel is rising in the United States.”

Rabobank said after strong buying in December, China’s January imports of soybeans registered a 15 per cent decline in January, with the US accounting for just 44 per cent of the total compared with 81 per cent a year ago.

“Trade flows suggest Chinese import demand for soybeans will soften further in March, resulting in a nearly 25 per cent drop in that country’s Q1 imports,” Mr Vogel said. “This shift is due to reduced use of meal in hog rations, along with growing domestic production and the increasing ease with which China can source soybeans from multiple suppliers worldwide.”

Mr Vogel said hedge funds have taken on a fairly significant short soybean position on the Chicago Board of Trade, speculating on further declining prices. “In case they need to unwind their position quickly – for example due to good demand or weather-related supply problems – the stage will have been set for a potential short-covering rally in the soybean market.”

In the southern hemisphere, Brazil – the world’s largest exporter of soybeans – is also harvesting its second-largest crop on record this season, and South America’s total soybean crop is its largest ever, due to a recovery in Argentina from last year’s drought-reduced levels, he said.

“Because of advantages in ocean freight and, to a lesser extent, crude protein content, soybeans at Brazil’s southern ports typically enjoy a premium relative to CBOT (Chicago Board of Trade),” Mr Vogel said. “Now, for just the second time in a decade, basis Paranagua (Brazil’s FOB soy meal basis) has moved solidly into negative territory – a reflection of the weak Chinese demand and a market reckoning with strong supply.”

“So, looking at the broader global oilseed complex – while vegetable oil demand globally remains strong, oil meal demand is not keeping up. And for oilseed processors, that’s hurting margins and they are passing on the squeeze to producers, with canola also feeling the price pressure over the past months.”

Mr Vogel said Brazil and Argentina are currently harvesting and not much should change market sentiment about those crops now. “All eyes will soon focus on northern hemisphere soybean and canola production, with May the crucial yield-determining month for canola and August for soybeans.”

For canola, Mr Vogel said the large soybean supply has already pushed prices down as it adds more vegetable oil and meal globally. “Canola would benefit if hedge funds change their position and soybean prices increase, but such a soybean price jump seems rather unlikely for now.”

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