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Canola future accelerate rebound, underpinned by Canada stocks dip


Canola futures accelerated their rebound from contract lows after Canada said that its stocks of the oilseed had shrunk by a little more than investors had expected, underpinning a boost from a palm oil rally.


Winnipeg canola futures for March stood up 1.3% at Can$460.80 a tonne in morning trade, taking to 2.7% their revival from a contract low reached on Monday.


The rally was kicked off by a strong performance by palm oil futures, which for April soared 5.1% to 2,804 ringgit a tonne in Kuala Lumpur, helped by a poll showing that investors expect official data next week to show a further sharp decline in Malaysian inventories.


“Malaysian palm values jumped overnight as pundits believe palm oil stocks are nearing three-year lows,” said US-based broker Benson Quinn Commodities.


"Malaysian palm oil increased 5% on trade estimates for end-of-January stocks to decrease 41% from the previous year," said Terry Reilly at Futures International.


Canola, and rapeseed, produce relatively large amounts of oil, rather than meal, when processed, making them more sensitive to changes in vegetable oil prices than the likes of soybeans, which are higher in protein.


‘Decline in stocks’

However, canola futures made further gains after Statistics Canada released data pegging Canadian stocks of the oilseed at 14.27m tonnes as of the end of December, a figure which – while historically large - was down some 350,000 tonnes year on year, and a little below investor expectations of 14.4m tonnes.


“Despite higher carry-in stocks, up 52.9%, lower canola production in 2019, coupled with higher industrial use, led to the decline in total canola stocks,” StatsCan said.


The fall came despite a year-on-year decline of 14.7%, or 641,000 tonnes, in exports, “largely because of lower exports to China”, with which Canada is in conflict after arresting an executive of telecoms giant Huawei at the behest of the US.


Durum vs other wheat

For wheat, StatsCan showed Canadian inventories at the close of December at 24.98m tonnes, down 127,000 tonnes year on year, but above market expectations of a 24.6m-tonne number.


Officials noted here too “lower wheat exports compared with the same period a year earlier”, besides too a small rise in production.


Indeed, excluding the durum wheat used to make pasta, stocks rose by more than 830,000 tonnes year on year to a five-year high of 20.47m tonnes.


However, this had largely been factored in by investors, with the durum stocks figure of 4.52m tonnes, while a three-year low, ahead of the level of 4.2m tonnes that the market had expected, according to a Reuters poll.


Barley, oats

For barley, Canada’s end-December inventories were, at 5.96m tones, up by a little over 1.0m tonnes year on year, but behind market expectations of a 6.3m-tonne figure.


StatsCan noted that domestic barley production “rose 23.9% to 10.4m tonnes in 2019, offsetting record low carry-in stocks and pushing total stocks higher”.


For oats, inventories rose by 265,000 tonnes year on year to 2.67m tonnes.


Both on-farm stocks, up 9.0%, and commercial stocks, up 30.9%, contributed to the increase,” officials said.


‘Substantial amount unharvested’

StatsCan added that the stocks figures may yet be revised, given that thanks to wet conditions a “substantial amount of crops likely remained unharvested” as of the December 13-January 15 period when it surveyed growers to form the basis of the stocks report.


“Crops harvested after the collection period for the… survey will be included in later surveys.”


The US Department of Agriculture’s Ottawa bureau said in a report published earlier this week that data from Canadian provincial authorities suggested that 7% of spring wheat area, by sowings, and 3% of durum remained to be harvested as of early December.


“The remaining area will be harvested in the spring, but large sections of spring wheat and durum have been knocked flat by snow and will be difficult to pick up,” the bureau said.


“While some of it may qualify as feed, a portion of it will likely be considered waste.”

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