Grain prices this morning are mixed ahead of the Easter long weekend, which gives us a moment to reflect on some macro trends, namely canola exports today
“Right now I’m having amnesia and deja vu at the same time… I think I’ve forgotten this before.” – Steven Wright (American comedian)
Apr. 18 – Will Canola Exports in 2019 Echo 2018 Soybeans?
Grain prices this morning are mixed ahead of the Easter long weekend, which gives us a moment to reflect on some macro trends, namely canola exports today. Overall, the complex is trying to rebound a bit from yesterday, in addition to squaring up positions ahead of the three-day weekend.
On the geopolitical front, the next round of U.S.-China talks are expected to take place in late May or early June, albeit US Trade Representative Lighthizer is expected to be in Beijing next week.
At the Black Sea Grains conference last week, AgriCensus reported that the likelihood that China buys 10 MMT of U.S. corn as part of the trade war talks is practically nil. This is because 7 MMT has already been allocated for Chinese corn imports, and unless the quota is amended in a trade deal between Washington and Beijing, it’s more likely that China will continue to buy 4-5 MMT of US corn in 2019/20. Some have suggested that any increase in U.S. corn exports to China would offset more soybean exports the People’s Republic. However, at this point, the African Swine Fever disease might have more of an impact on global soybean prices than the continuation of the U.S.-China trade war does. 
As indicated in last week’s April WASDE report, we know that China is willing to import more sunflower seed and palm oil to help make up for less soybean and canola imports. In Ukraine, the USDA’s attaché there suggests that planting rapeseed and sunflowers are providing the best profitability for farmers out all crops by a long shot at 44% and 41% ROI respectively. 
Staying in the Black Sea, SovEcon increased their estimate of the Russian 2019 wheat harvest to 83.4 MMT, a significant jump from their previous estimate of 80 MMT. As a reminder, Russia took off a record wheat crop of 85 MMT just 2 years ago. Nearby, a German farm co-op suggests that the wheat harvest there this year come in at 24.44 MMT. This would be about a 21% jump after last year’s dry harvest than lowered production totals.
What’s Up in the Land Down Undaa?
Recently the USDA equivalent in Australia, ABARES, suggested that, regardless of the hog-culling virus in China, global demand for oilseeds are only going to go up, and that China will continue to be the main driver of that!  While the majority of the canola produced in Australia goes to food markets in Asia or biofuel markets in the EU, namely Germany and Belgium.
The USDA’s office in Australia has matched the estimate from ABARES, suggesting that canola production in the Land Down Undaa will rebound by 68% year-over-year to 3.7 MMT in their 2019/20 crop year, which starts December 1st.  This is a result of harvested acres jumping 42% from 4.7M acres last year to 6.67M in 2019. The USDA’s Aussie attaché also expect canola exports to rebound by 29% to 2.4 MMT, with Europe accounting for about 2/3s of that volume.
However, should the political spat between Beijing and Ottawa continue (and Canadian canola exports remain in the middle), Australia canola exports to the People’s Republic could increase and, in turn, Canadian canola might go into those other Asian markets that Australia has normally traded with, namely South Korea, Japan, and Malaysia. This game of musical chairs would help support canola prices for both markets as it would help maintain some export demand. To verify if this is possible, just look at what U.S. soybean exports have done this year, taking up demand that Brazil, Argentina, and/or others would usually fill (but those countries were busy exporting to China).
This, of course, is all on the assumption that Australia gets some much-needed rains and temperatures pull back from their above-average averages (yes, you read that correctly). The Australian Bureau of Meteorology is expecting average precipitation across the country over the next 3 months, but soil moisture in the eastern states continues to be a major concern. The problem is, especially in Eastern Australia, above-average temperatures are expected to be realized this calendar quarter, which intuitively means that the growing conditions won’t be ideal again this year.
What Will Support Canola Exports, Prices?
Staying in canola production, there are some farmers in Western Canada who are thinking about not even planting any canola this year because of the risks associated with China not really sitting at the trade table anymore.  As mentioned in Monday’s and yesterday’s FarmLead Breakfast Briefs, I think that thanks to feed barley prices and pea prices, some lost canola acres could go into peas, flax, barley, and other cereals. Earlier this week, Agriculture Canada came out with its most recent estimates of Plant 2019 expectations. As a reminder, Statistics Canada will put out its own estimates of Canadian acreage intentions next week on Wednesday, April 24th.
Canadian canola buyers are looking at doing more refining into canola oil and selling the finished product to countries that don’t have processing capacity. Mexico is already one of the top destinations for Canadian canola exports but the USDA’s attaché down there suggests that soybean crush margins are more attractive than canola. This is an example where instead of sending more straight canola exports to Mexico, sending the actual canola oil might be of more interest.  While we’ll get the updated numbers from the CGC later this afternoon for Week 37 of the 2018/19 crop year, canola exports through Week 36 are tracking 7% behind last year’s pace.
Also, the Canadian biodiesel industry is optimistic that some government help could increase their demand for canola and that could help boost canola prices.  Currently that demand is less than 500,000 MT per year but that could grow to nearly 3.2 MMT if Environment Canada publishes its Clean Fuel Standard in 2020 with Advanced Biofuels Canada’s recommendations. While this would certainly be supportive, fewer canola acres in Plant 2019 might be the main contributor to canola prices finding $500 CAD/MT again soon.
Happy Easter and have a great long weekend!
At 7:30 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3376 CAD, $1 CAD = $0.7476 USD)
May Corn: +0.8¢ (+0.2%) to $3.59 USD or $4.787 CAD
May Soybeans: +1.3¢ (+0.15%) to $8.803 USD or $11.737 CAD
May Soybean Meal (per short ton): +$0.30 (+0.1%) to $304.20 USD or $405.60 CAD
May Soybean Oil (cents per lbs): +0.07¢ (+0.25%) to 28.53¢ USD or 38.04¢ CAD
May Oats: -6.5¢ (-2.15%) to $2.933 USD or $3.91 CAD
May Wheat (Chicago): -3.3¢ (-0.75%) to $4.438 USD or $5.917 CAD
May Wheat (Kansas City): -1.5¢ (-0.35%) to $4.19 USD or $5.587 CAD
May Wheat (Minneapolis): +1.8¢ (+0.35%) to $5.293 USD or $7.057 CAD
May Canola: +3.9¢ (+0.4%) to $10.272/bu / $452.90/MT CAD or $7.704/bu / $339.68/MT USD
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