Aug 20 – Canola Prices Returning to Grace?

Good Morning!

Canola prices, along with soybeans, are starting the week higher, while the rest of the grain market sits in the red looking for their next bullish headline.

“Change is the end result of all true learning.” ― Leo F. Buscaglia (American Author)

Canola Prices Returning to Grace?

Canola prices and soybean prices are starting higher this week, while the rest of the grain market sits in the red looking for their next bullish headline.

One of the main reasons for the recent improvement in canola prices has been some early Harvest 2018 reports of below-average yields. A second catalyst is the bullish movement of money managers getting more bullish on canola prices, as they moved from a net short position to a net long of more than 6,600 lots last week.

2018-08-17-canadian-canola-prices-futures

This week, grain markets will see the 2018 ProFarmer Crop Tour across the US Midwest. [1] Follow along via Twitter using the hashtag #PFTour18 as the annual trek tries to dispute the USDA’s most recent yield estimates of 178.4 and 51.6 bushels per acre for corn and soybeans respectively.

Trade War Off the Table?

Something we provided some extensive coverage in our Weekly GrainCents Digest (sent out every Sunday morning) was the possibility of a Chinese-American trade war being called off.

Soybean prices pushed higher on Friday on news that the United States government has set meetings with China to discuss concessions and ways to mitigate the ongoing trade problems that have hammered grain prices. According to reports, the two nations are working on a framework ahead of meetings between the Trump administration and Chinese leader Xi Jinping in November.

The bottom line is that regardless of what happens politically in the next two weeks, there will be peaks and valleys to the price chart for the next four weeks. It will operate on the hopes and fears of traders.

Ultimately, we’re looking for a situation where an unnamed source claims a breakthrough, and traders start buying with abandon. We just watched this happen a few weeks ago after Bloomberg cited two unnamed sources on a possible trade discussion. That rally faded when everyone realized that no actual source had been named.

Now, we have the Chinese Trade Ministry on record. We also now have the actual name of the U.S. Trade Representative who will host the Chinese delegation. And now, we have a market, where China has bought up as much as it can from South America, and it will be forced to turn to the United States for soybeans and a variety of other commodities as a buyer of last resort.

This may be rocky. But the combination of fundamentals in the market combined with a possible pre-October breakthrough on trade could offer a badly needed boost to soybean prices.

Canola Prices Plagued or Supported by Soybeans?

One of the things we touched on for our GrainCents canola readers this weekend was the potential impact to canola prices should a trade war between the US and China.

Currently, it’s expected that, with less soymeal/soybean demand coming from China, canola demand prospects should be good in 2018-19. About 80% of Canada’s canola meal exported to China is sold to fish farms. The problem with the demand from the Chinese aquaculture sector is that this market is very seasonal, typically hitting its peak from May until September.

While aquaculture is mainly where canola meal is going, there’s a lot of opportunity for growth in the Chinese livestock market. A recent initiative of the Canola Council of Canada has been to invite Chinese swine nutritionists to share research and information on the benefits of canola meal in livestock feed rations.

This is relevant because, in the August WASDE report, the USDA is estimating world pork production at 113.5 MMT carcass weight equivalent (CWE) in 2018. This would be a new record (and a heck of a lot of bacon!) For perspective, China’s hog industry produces on average about 55 MMT CWE or about half of the world’s pork production.

The main takeaway here though is with less US soybeans making their way into China, there remains a gap in feed campaigns, and thus a tremendous opportunity for the growth of canola exports (and hence, canola prices). This is only possible though if the US and China continue to butt heads.

Wheat Prices Focus on EU, Black Sea

Nearly a year ago, we wrote a FarmLead Insights piece on the rise of the Russian wheat industry, and how they have been a critical factor in the global wheat market.

While combines roll in Western Canada, right now it seems like, Russia’s production, exports, and policies are more important than the clouds in the sky. That’s why we saw wheat prices reverse course this past Friday and whip higher. In about 5 minutes, we saw a 4.5% jump in wheat prices on news that Russia might limit exports in the wake of dry conditions and similar actions by neighboring Ukraine on milling wheat.

Rumors are swirling — well at least a few traders believe — that Russia might limit grain exports once the country has sold 30 MMT. Russian officials are still saying that they will export 35 MMT of wheat this year as they want to remain the top exporter of wheat in the world. But just the mere mention of export quotas will lead to a big jump in prices.

The same thing happened almost three weeks ago when grain prices rallied (including wheat prices by more than 7%) after the Ukrainian government issued a Facebook post and everyone overreacted.

The extreme dryness along the Black Sea and in many parts of provides a bit of a harbinger of what else will come across the continent as the market starts to think about the farmers in these areas beginning to plant their winter wheat crops for the 2019/20 crop year. While the EU crop is looking smaller, the quality is still looking okay. [2]

Also impacting wheat prices is ergot issues being seen in the North Dakota spring wheat crop. While it is a bit early, loads have been getting rejected because of the fungus level being too high.  [3]

Needless to say, while the combines are rolling, harvest pressure on wheat and canola prices might not be as pronounced this year because of quality, quantity, and trade issues.

To growth,

Brennan Turner

President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:20 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3073 
CAD, $1 CAD = $0.7649 USD)

Dec Corn: -1.0¢ (-0.26%) to $3.785 USD or $4.948 CAD
Nov Soybeans: 11.3¢ (1.27%) to $9.040 USD or $11.818 CAD
Oct Soybean Meal (per short ton): $2.00 (0.60%) to $332.70 USD or $434.94 CAD

Oct Soybean Oil (cents per lbs): 0.27¢ (0.95%) at 28.63¢ USD or 37.43¢ CAD  
Dec Oats: 0.8¢ (0.30%) to $2.678 USD or $3.501 CAD
Dec Wheat (Chicago): -10.5¢ (-1.87%) to $5.513 USD or $7.207 CAD
Dec Wheat (Kansas City): -7.5¢ (-1.26%) to $5.855 USD or $7.654 CAD

Dec Wheat (Minneapolis): -5.3¢ (-0.85%) to $6.200 USD or $8.105 CAD
Nov Canola: $1.10 (0.21%) to $11.748/bu / $518.00/MT CAD or $8.896/bu / $396.23/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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