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Nov 22 – Canola Prices Watching/Waiting on China, Soybean Complex

Grain markets are mixed this morning, with canola prices eyeing vegetable oil needs while wheat’s bulls are working hard to make a green week for the complex.

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Canola Prices Watching/Waiting on China, Soybean Complex

Grain markets are mixed this morning, with canola prices eyeing vegetable oil needs while wheat’s bulls are working hard to make a green week for the complex.

Propane levels in Ontario and Quebec are nearing crisis levels, with available supplies amount to just a few days worth of use. [1] The main reason behind the crunch is the CN Railway strike, as the two Canadian provinces get their supply delivered by rail (whereas trucks are predominantly used in the Canadian Prairies). Further, Prime Minister Trudeau has refused to reconvene Parliament until December 5th, meaning that Ottawa won’t involve itself in the strike for another 2 weeks. [2] Comparably, while there is a lot of talk of similar propane shortages in the U.S., it’s actually not that there isn’t supply, but rather that logistics/transport providers aren’t able to get to market fast enough. [3]

Further, demand has increased as U.S. farmers are having to dry more of their grain due to the late harvest, meaning transport/logistics providers can’t keep up, thus resulting in a pseudo-shortage. Speaking of keeping up, the USDA said that they’ll continue their weekly reporting of the U.S. crop progress into December until the 2019 harvest gets closer to the finish line. [4] Staying in the reporting theme, yesterday’s export sales report from the USDA showed positive numbers for all three major crops, including 1.52 MMT of soybeans, 834,000 MT of corn, and 438,000 MT of wheat exports. These were all at the top end of expectations.

Canola Prices Battling Divergent Factors

Canola prices lost some footing yesterday on weaker values for soy oil and the Canadian Loonie gaining some strength. Looking beyond the day-to-day, the Australian Oilseeds Federation is now forecasting a 2019 harvest of a little under 1.9 MMT. [5] If realized, this would be down 18% and 414,000 MT from last year’s 2.31 MMT Aussie canola harvest. With nearly all of Australia receiving below-average precipitation, and limited stored soil moisture available after two straight years of drought conditions, these numbers aren’t all that surprising.

We’ll get another update from ABARES (Australia’s version of the USDA) on Tuesday, December 3rd, which will be a few days before Statistics Canada releases its own update of Canadian crop production estimates on Friday, December 6th. In the meantime, it’s worth mentioning that Agriculture Canada’s monthly update of supply and demand tables was quiet. For canola prices, the AAFC forecasted value was raised for the second consecutive month. There wasn’t much else to report on other than Agriculture Canada raised Canadian lentil exports by 200,000 MT to 2.1 MMT. This coincides with our discussion from Monday’s FarmLead Breakfast Brief about increasing international demand for pulses.

The forecast for canola prices was raised for the 2nd consecutive month by Agriculture Canada

Also moving canola prices though is the declining of vegetable oil stocks in China. [6] The USDA said in their November WASDE report a few weeks ago that, by the end of the 2019/20 crop year, China would hold just 1.46 MMT of canola/rapeseed, soybean, and palm oil stocks, a significant drop compared to levels of the last few years. More specifically, in the last 4 years, Chinese rapeseed oil inventories have fallen nearly 2.9 MMT, or by 77% from the 3.75 MMT held at the end of 2015/16.

Helping canola prices a little are Malaysian palm oil prices climbing yesterday to their highest in 2 years thanks to declining stocks and drier conditions negatively impacting production in southeast Asia. While Malaysian palm oil and Chinese aggregate vegetable oil inventories are certainly something to watch, ample Canadian supplies (as shown in the chart above) and limited Chinese imports of Canadian canola seed are keeping canola prices rangebound. Domestic crush continues to be very strong though and this is supporting canola prices; volumes are tracking 28% higher year-over-year through Week 15 of the 2019/20 crop year.

China Working on its Commodities Plan B

While China will certainly need to rely on imports to meet its domestic needs, the People’s Republic are working hard on diversifying their supply sources. Over two years ago, I mentioned the rise of Russia as the world’s wheat king, but in that same FarmLead Insights article, we also talked about the building up of Russia’s soybean production and how China would certainly be interested in it. That said, in the last five years, China’s imports of Russian soybeans have grown by 51 times, from 15,000 MT to 763,000 MT last year. [7] Keep in mind, however, that China imported 82.54 MMT of soybeans in 2018/19, meaning imports from Russia were less than 1% of total purchases.

That said, we know that China has interest in more Australia canola this year (mainly because of the pollical spat with Canada), in addition to buying meat from anyone and their mother who’s willing to offer it. In addition to re-approving Canadian pork and beef imports, China also opened up the door for American poultry imports again, as well as Brazilian offal (byproducts like organs). That said, it’s worth mentioning that China’s breeding sow stocks in October grew for the first time in 19 months. [8] While this is a positive sign to rebuilding the country’s hog herd, it’ll be some time before and pork prices start to calm down and China replaces the estimated 175M animals that were culled due to the African Swine Fever.

Next week is U.S. Thanksgiving and it’s more than likely that trade war talks will slow down over the holidays. While there hasn’t been a lot of optimism lately, China did reiterate its stance yesterday that they want to get this initial Phase One deal done as soon as possible. [9] China also invited U.S. trade negotiators to Beijing for face-to-face talks but U.S. representatives said they wouldn’t travel there until they can get firm numbers on intellectual property/technology transfers and, more importantly agricultural purchases. [10] Looming in the background is the date, December 15th, which is when the next wave of U.S. import tariffs on Chinese goods are set to go into effect.

Have a great weekend!

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

At 8:10 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3261 
CAD, $1 CAD = $0.7541 USD)

Mar Corn: -1¢ (-0.25%) to $3.78 USD or $5.013 CAD
Jan Soybeans: -1.5¢ (-0.15%) to $9.138 USD or $12.117 CAD
Jan Soybean Meal (per short ton): -$0.80 (-0.25%) to $302.40 USD or $401.01 CAD
Jan Soybean Oil (cents per lbs): +0.27¢ (+0.85%) to 31.15¢ USD or 41.31¢ CAD  
Mar Oats: -1.5¢ (-0.45%) to $3.15 USD or $4.177 CAD
Mar Wheat (Chicago): +1.8¢ (+0.35%) to $5.138 USD or $6.813 CAD
Mar Wheat (Kansas City): +2.3¢ (+0.55%) at $4.308 USD or $5.712 CAD 

Mar Wheat (Minneapolis): unchanged at $5.093 USD or $6.753 CAD
Jan Canola: +0.9¢ (+0.1%) to $10.718/bu / $472.60/MT CAD or $8.083/bu / $356.39/MT USD

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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Grain markets are mixed today with oilseeds up but corn and cereals lower, despite some continuing strength of wheat exports, especially in the United States.
Nov 18 – Dividing Expectations for Pulses & Soybean Exports
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Grain markets this morning are relatively quiet so today we’re looking into stronger activity for pulses, but, conversely, weak soybean exports.
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