Canada is using its canola faster than planned, and the price is falling anyway

Canadian crushers and exporters are working through the canola crop faster than the country's own balance sheet allows for, and the price has kept falling while they do it. The demand is there in the flows; the market is reading a harvest that farmers are selling.

The crushers did not wait for the harvest

Canada crushed 1.23 Mt of canola in September, a fifth more than a year earlier, after 1.24 Mt in August. Those two months alone come to 17.2% of the 14.4 Mt that Agriculture and Agri-Food Canada expects the country to use at home over the whole year, where August and September usually account for 13 to 15%.

That pace was set before the new crop was in. Crushing and seed exports together drew about 3.4 Mt in August and September, out of 1.9 Mt left in the bins on 31 July, while barely a quarter of Saskatchewan's canola was harvested by the end of September, when two thirds usually is. The plants finished the old crop and took the new one as it came off the field.

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Nor is the crush soaking up seed that could not leave. Exports reached 1.62 Mt by mid-October, 15% above their average for the date, so the crop is being pulled from both ends at once.

And yet the price is falling

ICE canola has lost about 5% in dollar terms since the end of September, no more than soybeans in Chicago, so the futures are following the soy complex rather than the Canadian balance sheet. What is Canada's own is the cash market:

• Saskatchewan basis. Farmers were getting 76 CAD/t under futures on 26 October, about 10 CAD/t less than a year earlier. The gap has widened every autumn since 2021, and it is wider again.
• Against Europe. Canola's discount to Euronext rapeseed has grown from 38 to 55 $/t over the same weeks.

That is the shape of a harvest being sold hard, and it is pressing on the price at the very moment the crop is being used faster than planned.

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Our reading: the harvest selling is hiding the demand

The flows point to a tighter Canadian balance than the 1.97 Mt carry-out AAFC still pencils in, while the price reflects farmer deliveries at the end of a late harvest. Once that selling passes, the demand underneath could start to show in the price. Three signals in our data will tell whether it does:

• October crush. The first month with the harvest in. If it holds near the August and September pace, the 14.4 Mt of domestic use stops being a ceiling, and either exports or the carry-out has to give.
• Saskatchewan basis. A narrowing once deliveries slow would be the crushers' demand surfacing in the cash price.
• Weekly seed exports. If they keep running above their usual pace alongside the crush, the two outlets are competing for the same crop.