While the price of the November canola contract still declined by $10/tonne to $726.10 during the week ended Wednesday, it hit its lowest price since the end of June at $710/tonne on Tuesday before making its way back up.

Ken Ball, a trader for Winnipeg-based PI Financial, said canola had been oversold in recent weeks, pressured by the ongoing harvest.

“There’s a lot of harvest selling going on, that’s been a part of it,” Ball said. “(Traders) have been working with spreads a bit, keeping canola under pressure. But once (soyoil) starts to go up, canola does better and it was due for a bounce. The shorts can only push (canola) down so far before it becomes attractive to buy.”

Biofuel usage is currently strong, he added, which may lift prices for soyoil and soybeans. Diesel prices also remain elevated, supporting soyoil prices.

“I imagine that soyoil has the potential to stay at least reasonably firm to support canola more,” he predicted.

Combining operations across the Prairies are progressing at a brisk pace due to warmer weather and a relative lack of precipitation in most areas. In Manitoba, the overall harvest was 76 per cent complete, 12 points above the five-year average, with 78 per cent of the province’s canola off the fields.

However, Ball said, the canola harvest is ongoing and wetter areas such as northern Alberta still have lots of crop to come off the fields.

“Harvest is going very slow in some areas… but yields managed to percolate higher in the latter part of August and into September with some late moisture. I’ve got clients who only started their harvest over the last week or so.” he said. “Harvest pressure is abating a bit, but yields are coming on very strong in parts of the country. Much better than expected.

“Harvest pressure should slow down in about a week or two.”

Soyoil stocks could be further reduced in an already tight situation, according to Ball, if biofuel usage continues at its current rate. Should that happen, canola prices could continue to rise.

Soybeans “might get tight for food usage. Right now, we’re looking for a routine rebound of $30-$40/tonne (for canola). Maybe a little more, up to $50,” he said, adding that South American weather could also emerge as a factor.

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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U.S. refining capacity has declined in the last two years, as plants shut during the outset of the coronavirus pandemic, causing prices to spike. Several plants are being converted to facilities that can produce cleaner-burning renewable diesel, but at least for now, those facilities will not fully replace those refined barrels.

There are at least 12 renewable diesel projects worth more than $9 billion under construction, with another nine proposed (all figures US$). The 12, along with existing plants, are expected to produce about 135,000 barrels per day (bpd) of renewable diesel by 2025 according to EIA data, from around 80,000 bpd now.

However, since 2019, diesel production capacity has dropped by about 180,000 bpd total, according to the U.S. Energy Information Administration, and at least one more U.S. refinery is set to close next year, further reducing output. In addition, those refiners set to produce renewable diesel will also no longer produce gasoline or jet fuel.

Globally, about 400,000 bpd of combined diesel, jet fuel and fuel oil capacity has been lost since 2019, according to calculations from EIA data.

Renewable diesel is made from animal fats, food wastes and plant oils but is chemically equivalent to petroleum-based diesel. It can be produced in existing refinery equipment, but the yield are lower than with diesel. Biodiesel, another plant based diesel, must be mixed with petroleum to operate effectively in engines.

Growing demand and refinery losses have pushed diesel prices to record levels. The retail price of U.S. diesel has surged 80 per cent this year to $5.78 a U.S. gallon, and low inventories have raised the potential for shortages. U.S. stocks of distillates, including diesel, are down 19 per cent from a year ago.

About 1 million bpd of new petroleum refining capacity is planned in the next five years in Asia, the Middle East and on the U.S. Gulf Coast. But experts say startups are difficult to predict due to construction delays, changes in market demand and financing.

Biodiesel pivot

U.S. refiners joined the renewable fuels bandwagon two years ago as the pandemic slashed fuel demand and environmental pressures led several to choose de-carbonizing over shuttering facilities.

Marathon Petroleum’s 166,000 bpd Martinez, California refinery and Phillips 66’s 120,200 bpd Rodeo refinery, also in California, converted to renewable diesel facilities. Combined, they will produce 100,000 bpd of renewable diesel by 2023.

HF Sinclair converted a 52,000-bpd Cheyenne, Wyoming, refinery to produce 6,000 bpd of renewable diesel. The former Come-by-Chance refinery in Newfoundland aims to begin producing 18,000 bpd of renewable fuels by 2024.

“These projects should bring incremental barrels in the next few years, but not now when they would be more needed,” said Ravi Ramdas, managing director of energy consultancy Peninsula Energy.

Renewable fuel profits have been bolstered by states, led by California’s Low Carbon Fuel Standard, that reward producers with tradable credits for producing renewable fuels.

However, the credits are now trading at about $80 per ton, down from $200 per ton in 2020, when the majority of these projects were proposed. Still, U.S. refiners say they are not backtracking on renewable diesel projects.

The cost of vegetable oils used to make renewable diesel also has shot up following Russia’s invasion of Ukraine. Soybean oil, a popular refinery feedstock, is up 40 per cent year-over-year, while crude oil is up more than than 60 per cent in that time.

— Laura Sanicola reports on the U.S. energy sector for Reuters from Washington, D.C.

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“After touring multiple farms around the province to hear from farmers and meeting this morning with farmer Tim Marsh at the Nova Scotia Federation of Agriculture, I am acting to help farmers struggling with rising diesel costs,” provincial Agriculture Minister Greg Morrow said in a release May 25.

The government is adding $200,000 to LTAP, bringing its total funding for the program to $550,000. Farmers have to apply to the program online and provide receipts in order to be reimbursed, for up to $32,000 per year per applicant.

Limestone is an essential component for most farmers in the Maritime provinces because the soil’s acidity is naturally higher, so it must be amended to counteract and neutralize that low soil pH.

Also, NSAF president Marsh notes, growers in the region receive more acid rain.

While Marsh is happy more money is being put into LTAP, he’s still concerned with cash flow for farmers.

“My biggest concern is firm cash flow because farmers still have to go and buy the stuff to begin with,” he said. “And I’m hearing stories that guys are cutting back on their inputs because they just don’t have the cash flow to buy everything they should have, and so, that makes me worried.”

In 2021, 143 farmers applied for assistance from LTAP.

— Liam O’Connor reports for Glacier FarmMedia from Saskatoon.

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Patrick DeHaan, head of petroleum analysis for GasBuddy, said retail diesel prices are down by about 10 to 15 cents per litre since the beginning of the year.

The drop in prices is caused by lower-than-average demand, partially due to milder winter temperatures in regions where diesel is used to heat homes.

However, as with most financial indices, crude oil and diesel prices are largely at the mercy of the rapidly spreading COVID-19 coronavirus. DeHaan expected prices to continue to trend downward in light of reduced demand for diesel, gasoline and jet fuel.

“The overwhelming odds are that diesel prices will continue to move lower in the weeks ahead,” he said.

The Organization of Petroleum Exporting Countries (OPEC) on Thursday proposed production cuts in order to stymie rapidly dropping crude values, which would “trickle down” to raise diesel prices as well. OPEC’s allies rejected the proposal.

However, refineries around the world could choose to cut output rates independent of an industry-wide agreement.

Oil refineries typically perform routine maintenance work on facilities at this time of year, which cause fuel inventories to dip slightly, DeHaan noted. That could cause “a small rally” in diesel prices, but markets are largely in lockstep with COVID-19 headlines.

“Prices are going to be driven by developments, either positive or negative, when it comes to the coronavirus,” he said.

“If the coronavirus simply stopped spreading tomorrow, things would be very different.”

— Marlo Glass reports for MarketsFarm from Winnipeg.

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While a farmer’s demand for diesel is highest during growing and harvest seasons, diesel prices typically increase in the winter due to the percentage of homes that are still heated with oil.

“There are some places in the northeast U.S. and Canada that still use heating fuel, which is essentially the same as diesel fuel,” said Patrick DeHaan, head of petroleum analysis with GasBuddy.

“So prices move up towards the end of the year.”

But as of Jan. 1, a new specification from the International Maritime Organization (IMO) will boost diesel demand. The IMO is requiring large ocean vessels to run on ultra-low sulphur diesel, which will reduce pollutants.

Ocean vessels have the option of installing mechanisms that clean the sulphur out of currently-used bunker fuel — or they can begin fueling with the same diesel most Canadians use, DeHaan said.

“At the turn of midnight, we’ll see a tremendous increase in demand for those diesel products.”

Although Canadian refineries are working to meet increased demand, DeHaan said there looms “an open-ended question regarding if there’s enough supply to meet that demand.

“That’s a point of contention for prices,” he said.

The spike in demand will affect not only subsequent consumer prices at the pump, but also commodity prices. However, it’s too soon to tell if increased freight costs will impact a commodity buyer or seller.

Bids could be lower if producers are expected to cover shipping costs.

“Increased freight costs make suppliers more local,” and that could become a factor when buyers consider international trade partners, said Bruce Burnett of MarketsFarm.

— Marlo Glass reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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Diesel demand typically rises during harvest season because farming equipment and trucks transporting product use the fuel. Average distillate product supplied, which includes diesel, in the United States for the past four weeks was down seven per cent, according to U.S. Energy Department data.

After wet conditions postponed planting this spring, farmers in states such as Illinois and Iowa were expecting delays to harvesting crops this fall. And if recent rains persist, that may also hamper field work that farmers typically take on before winter to prepare for next year.

“The sentiment right now is that we just want to get this year over with,” said Rodney Weinzierl, a corn and soybean farmer in Illinois. “A lot of farmers haven’t even started (harvest) and won’t until next week, and we’re getting a cold snap and rain coming in.”

Fall harvest season in the region usually runs from late September through early November. Because of storms and flooding this spring, the harvest this year is delayed by about a month, said Rich Nelson, chief strategist for broker Allendale in Illinois.

This is weighing on spot diesel prices in the region. Ultra-low sulfur diesel prices in both Chicago and Tulsa are at their lowest for October since 2016, Refinitiv Eikon data shows. Currently, heating oil futures are trading at $1.9208 a gallon, and Chicago diesel prices are at 8.25 cents per gallon below futures (all figures US$).

In Illinois, 13 per cent of corn was harvested in the week to Oct. 6, versus 61 per cent during the same time last year, according to a U.S. Department of Agriculture crop progress report on Monday. In Iowa, three per cent had been harvested, compared with 14 per cent last year.

Dan Henebry, a corn and soybean farmer in Illinois, said he typically harvests corn in October. But this year, the crop may not be ready until November.

“This could stretch into December,” he said. “You may not get your tillage work done that you need to do.”

If field work shifts to next spring, Weinzierl said, it could have a knock-on effect on diesel demand then. “It may be that there would be more fuel used next spring in late March and April,” he said.

— Stephanie Kelly reports on the U.S. energy sector for Reuters from New York City.

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Marine fuels containing no more than 0.5 per cent sulphur by weight, down from the 3.5 per cent currently used, to power ocean-going vessels will be required for ships without exhaust scrubbers on Jan. 1, under the International Maritime Organization (IMO) 2020 standard.

In addition to the 0.5 per cent-sulphur fuel, called Very Low Sulphur Fuel Oil (VLSFO), shippers can use marine gas oil with a sulphur content of 0.1 per cent to replace marine fuel containing 3.5 per cent sulphur, called High Sulphur Fuel Oil (HSFO).

Some analysts expect a sizeable price jump as ocean shippers and fuel sellers begin stocking up, but warn existing refining capacity could fall short. Demand for bunker fuel was 3.5 million barrels per day (bpd) in 2018.

“The industry is not ready,” said Kurt Barrow, an IHS Markit consultancy vice-president, who forecasts a “sizeable” price increase for diesel.

“You’re not going to build enough new refining equipment nor add enough scrubbers” to meet initial requirements for VLSFO, he said.

The U.S. Energy Information Administration (EIA) said in report in March that shift in petroleum product pricing may begin as early as mid- to late 2019, with the effects on prices to be most acute in 2020, and then to moderate after that.

The average spot U.S. Gulf Coast ultra-low sulphur diesel (ULSD) prices for bulk orders could reach over $2.12 a gallon in the second half of this year and rise above that level in 2020, according to the IHS base forecast, Barrow said (all figures US$).

On Monday, the Gulf Coast spot market price for ULSD was $1.778 a gallon. The average spot price for U.S. Gulf ULSD in the first five months of this year was $1.926 a gallon, according to Refinitiv Eikon.

IHS’ forecast also expects the spot price of global crude benchmark Brent to reach an average above $67 a barrel between June and the end of this year. On Monday, the spot market price for Brent in London was $65.81 a barrel.

The spot price is for immediate delivery of a commodity, in contrast with the more-often quoted futures price, which is for a specific delivery at a future date.

The price rise will benefit refiners that have spent billions of dollars gearing up for the change. Plants that can maximize output of low-sulphur fuels such as marine gas oil “could see their margins surge,” according to a Boston Consulting Group report released last month.

It forecast high price spreads for IMO 2020-complaint fuels over sulphur-rich fuels lasting 18 months in two of its three uninterrupted conversion projections.

Net cash margin per barrel may climb over $10 in 2020, from about $3.80 a barrel now, IHS’s Barrow said.

Price increases could moderate, especially if the U.S.-China trade dispute weakens economic growth. Bank of America analysts, who this year projected refiners could see a $25 a barrel diesel margin in the fourth quarter from IMO 2020-compliant demand, now say the U.S.-China trade war “threatens to derail” that robust forecast by depressing economic growth.

Bonanza for some refiners

Analysts forecast demand for IMO 2020-compliant marine fuel should reach between 1.6 million bpd and 2.7 million bpd as shippers begin loading storage tanks and clearing vessels of existing bunker fuels.

Over the past several years, refiners have invested $100 billion to produce low-sulphur fuels, said Susan Grissom, chief industry analyst at trade group American Fuel and Petrochemical Manufacturers (AFPM).

Chevron Corp. and Marathon Petroleum, the largest U.S. refiner, this month said they are ready to supply IMO 2020 fuel. Chevron now has fuel available for testing, and will have continuous supplies in the market by late September.

The potential IMO 2020 bonanza has lured investors ArcLight Capital Partners and Freepoint Commodities to pour $1.4 billion into an idle St. Croix, Virgin Islands, refinery, to process 200,000 bpd of crude, and begin supplying the marine fuel by late this year.

U.S. refiners operating complex plants with hydrocrackers and hydrotreaters that remove sulphur from distillates are positioned to profit from selling IMO 2020 fuels, analysts at Tudor Pickering, Holt and Co. (TPH) said in a March report.

Demand for low-sulphur fuels could double earnings in 2020 from 2017 levels for complex refiners like Marathon and Valero Energy Corp, TPH said.

Such companies are “probably best positioned for the change” to low sulphur-fuels, said Gabriel Collins, a fellow in energy and environmental regulatory affairs at Rice University’s Baker Institute for Public Policy.

“There is a lot of optionality because of their complexity,” said Collins.

— Erwin Seba is a Reuters correspondent in Houston.

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GasBuddy.com senior petroleum analyst Dan McTeague pointed to an increase in overall demand, combined with a slowdown in heavy oil production and the federal carbon tax as well as pending IMO 2020 regulations — that is, the International Marine Organization’s planned reductions in sulfur content for all marine fuels, from 3.5 per cent to 0.5 per cent, by Jan. 1, 2020.

“It’s the perfect trifecta of bad news,” McTeague said. “While (people) may be upset with the gas price increase… they will be even more upset with the increase on diesel, which affects the price of everything.”

The analyst suggested people also keep a watchful eye on the value of the Canadian dollar relative to the U.S. dollar. There has been some speculation that the loonie, currently valued just above 75 U.S. cents, could plummet to 62 during the course of 2019, he said.

“If that’s the case, look for another 13-cent increase,” McTeague said of diesel prices.

Phil Flynn of the Price Futures Group in Chicago said the lack of heavy oil has been taking its toll. Diesel prices in the U.S. are at their highest average so far in 2019, at US$3.08 per gallon, according to the U.S. Energy Information Administration. Flynn suggested an increase to US$3.20 per gallon is possible.

“With farmers about to start planting, that will increase demand,” he said.

A big part of the problem has been oil production cuts by the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, Flynn said.

Added to that has been the U.S. embargo on imports of Venezuela’s heavy crude, which used to fed refineries on the Gulf Coast, on top of the inability to ship a sufficient amount of heavy crude from Canada, as the Keystone XL pipeline remains incomplete.

“If that were built, we would be getting a lot more of that heavy Canadian crude,” he said.

— Glen Hallick writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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According to one energy analyst in Chicago, farmers may want to buy some fuel before prices get too high.

“We’re telling our people to hedge some of your exposure, because we do think that, barring a big slowdown in the global economy, there is significant upside risk here,” said Phil Flynn of The Price Futures Group.

Supplies of diesel are currently below the five-year average and a crunch could be felt by the end of the year, he noted.

On Nov. 4, the U.S. is expected to halt imports of Iranian oil after U.S. President Donald Trump withdrew the country from the Iranian nuclear deal.

“We think that we could easily see the price of diesel put on another 10 to 15 cents a gallon to the upside in the next couple of months pretty easily,” he explained.

Prices for diesel across the Prairies were generally in the $1.21-$1.25 per litre range as of Wednesday. The recent rise in crude oil prices has provided some upward momentum for the market. Back in early September, prices were in a range of 95-99 cents in Western Canada.

Canadian diesel prices don’t tend to move in lockstep with their American cousins, but eventually follow the direction of the U.S. market.

One thing that could help the price stay in check, Flynn said, is if U.S. heating oil usage went down. An economic slowdown could also keep diesel prices from spiking.

“If the economy slowed down there is a potential for a squeeze play,” he said. “But I think we’re still closer to the low end of the trading range than the higher end.”

— Dave Sims writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.

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Brazil is the top global exporter of soybeans, sugar, coffee and chickens. The strike over high fuel prices has paralyzed Latin America’s largest economy, emptied Brazilian roadways and left major cities running short on food, gasoline and medical supplies.

Farmers and merchants have been unable to get their supplies to key ports during the nine days of industrial action. The strike has been slow to unwind even after the government agreed to subsidize diesel prices in a bid to end protests.

The strike has had a devastating impact on livestock. Tens of millions of chickens have been killed because feed supplies have failed. If they begin to starve, chickens start eating each other, so meat packers have culled flocks quickly, according to poultry and pork processing association ABPA.

“Lack of feed leads chicken to start pecking each other and blood and cuts appear, making them confuse flesh for food. That’s when cannibalism starts,” an industry source said on condition of anonymity because the person is not authorized to speak to the media.

Some 70 million chickens had died as of Monday, ABPA said, adding that farmers were running out of space to dispose of their carcasses. Brazil is the world’s biggest chicken exporter, supplying over a third of all shipments. The Latin American country is a big supplier of chicken to Asia and the Middle East.

ABPA estimated that the country had lost 120,000 tonnes in potential exports since truckers began protesting.

Nearly 4,000 trucks of beef are sitting on roadsides throughout the country, and the meat will soon rot, said beef packer trade group Abiec. Only two of Brazil’s 109 beef processing plants continued to operate, according to Abiec, and even those plants were working at half their capacity.

Brazilian beef processors said they had lost an estimated 40,000 tonnes of potential exports worth US$170 million since the strike began.

Force majeure considered

Soybean exporters are considering declaring force majeure on shipments, a contractual clause that releases them from obligations because of events beyond their control, according to Anec, a trade group representing grains exporters such Archer Daniels Midland and Louis Dreyfus.

No trucks had delivered soybeans to Santos, the largest port in Latin America, since the protests started on May 21, an Anec exporters group spokesperson said.

Brazil is one of the biggest suppliers to top buyer China.

Soy crushers group Abiove said on Tuesday all soy crushing units had ground to a halt in Brazil because of lack of supplies.

“There are reports that road blockades have been lifted in some places but we don’t know if the units started receiving raw materials to resume crushing,” an Abiove representative told Reuters on Tuesday.

International sugar futures notched their biggest percentage one-week rally so far this year as the strike prompted worries that millers in the world’s top sugar producer and exporter would slow crushing and be unable to get product to ports.

Cane harvesting in Brazil’s center-south, the world’s largest cane belt, has slowed because of fuel shortages.

As many as 340 mills in Brazil’s centre-south could be shut by Thursday if the strike persists, up from 220 already shut, said trade group Forum Nacional Sucroenergetico late on Monday.

Around 150 sugar mills have shut down in the state of Sao Paulo, trade group UNICA said in a statement on Monday. About 60 percent of the country’s ethanol and sugar are produced in the state.

Brazil’s top coffee exporter Cooxupe warned foreign clients last week about possible shipping delays due to the protests.

Brazil is the biggest grower and exporter of coffee, and the strike helped drive international benchmark Arabica coffee futures on ICE up two per cent to just above US$1.20/lb. last week. The strike came just ahead of Brazil’s main arabica harvest.

The Brazilian coffee industry is losing an estimated 70 million reais (C$24.3 million) per day due to the protests, trade group Abic said.

— Reporting for Reuters by Ana Mano and Jose Roberto Gomes in Sao Paulo; additional reporting by Marcy Nicholson and Chris Prentice in New York.

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