Grain markets are closed until 8:30 AM CST for U.S. Thanksgiving so, this morning, we’re looking at Canadian canola and pulses.
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Canadian Canola Demand Diverges as Pulses Rally
Grain markets are closed until 8:30 AM CST for U.S. Thanksgiving so, this morning, we’re looking at Canadian canola and pulses. The futures markets will be open for about 3.5 hours of trading before closing a little after 12pm/noon (just in time for a lunch of turkey sandwich & other leftovers!) The shortened trading week gives way to production estimate updates from Australian and Canadian government agencies on Wednesday and Friday, respectively.
In Monday’s FarmLead Breakfast Brief, we looked at some of the bullish headlines about the 2020 winter wheat crop. Fresh reports from Russia estimate that just 4% of the country’s 2020 winter wheat fields are in “bad condition” about half of what it was a year ago. Further, the Russian Ag Ministry lowered its 2019 harvest estimate by 3 MMT to 75 MMT. This is still 1 MMT higher than what the USDA said in the November WASDE report a few weeks ago.
In Wednesday’s FarmLead Breakfast Brief, we looked at the prospects for the South American soybean harvest, including a record haul in Brazil. Agroconsult recently provided their monthly estimate but kept it unchanged from last month at 124 MMT. Conversely, they estimated this year’s Brazilian corn harvest at 102.4 MMT, up about 4 MMT from the current government estimate. This will 9 figure production number will certainly need to be realized if the country wants to hit Anec’s corn exports forecast of 41 MMT (also discussed on Wednesday) which would be an 80% jump from 2018/19 shipments! That said, Rabobank is also expecting robust domestic demand for Brazilian corn not just this year, but also in 2020. 
Canadian Canola Helped at Home, Not Abroad
After a few days of losses, Canadian canola futures and cash prices were able to rebound a bit in the second half of this week. A stronger Loonie has also pressured Canadian canola markets, but, as mentioned last Friday, canola prices have also been tracking the soybean complex, which has been pushed lower with no trade war deal with China completed yet.
Putting more pessimism in the trade war talks, President Trump signed a new law this week that will have the U.S. annually review if Hong Kong should continue to be afforded its special trade status with the U.S.  The goal behind the Human Rights and Democracy Act is to ensure Hong Kong has enough democratic autonomy from China to justify the U.S. given preferential trade treatment. Probably the last thing Chinese officials wanted to see this week was a parade of U.S. flags through Hong Kong, as protests for more democracy continue. 
Moving away from politics, Canadian canola domestic demand continues to be strong as a new monthly record was established in October.  Last month, Canadian oilseed processors used 882,301 MT of canola, eclipsing the previous record set in October 2017 by a little more than 11,000 MT. The October canola crush volume was also up 15% from September’s crush, and 12% from October 2018’s levels. With profit margins of $100 CAD/MT nearly double levels seen at this time a year ago, Canadian canola processors have no reason to not keep crushing at these record levels, which, for the crop marketing year, are also up about 26% year-over-year.
Very clearly, demand for canola oil (including abroad) is healthy. Demand for actual canola seed aboard isn’t as robust though. Through Week 16, Canadian canola exports have totaled just 2.83 MMT. While a new marketing-year high was set last week with nearly 450,000 sailed, total canola exports are tracking 10% behind last year’s pace.
Pea, Lentil Prices Climbing
A few weeks ago, I talked about the increased opportunities for pulses on the international stage. Further, how some production issues in India and Turkey were supporting both pea and lentil prices. We’ve continued to see strength in the pulse markets as we near the end of November, notably in green pea prices, as cash deals above $11 CAD/bushel have been consistently seen on the FarmLead Marketplace. For those thinking about holding out on the Canadian canola market and keeping your bins locked, locking in some pulses to help shore up your cashflow position is a healthy idea. Post your peas or lentils on FarmLead today!
Speaking of lentil prices, we seen small red lentils trade in the 19 – 20¢ CAD/lbs level this month (dependent on region, freight, and movement time) while large green lentils are been leveling off about 25¢ CAD/lbs. As we end the month of November, traders of pulses in India are calling on the government there to allow for more imports in order stabilize markets and ensure enough supply.  Late fall rains will likely have a negative effect on the production of pulses in India this year, and traders there are expecting prices to remain firm until March, when the rabi (fall) crop starts to get harvested.
Very clearly, other than corn basis in the U.S., pulses might be the one bright spot of North American agriculture at the moment. Despite some very challenging growing conditions this year, resilient farmers have been able to prove that they can produce, keeping the industry well-supplied.  Accordingly, demand needs to continue to play its role in support prices. From some industries, like pulses, exports are the only main demand function currently, whereas others, like Canadian canola and U.S. soybeans, are seeing strong domestic activity, but weak international demand. For these latter markets like Canadian canola, without both domestic and international demand functions operating strongly, the result is weaker rallies (read: not as aggressive and not as long in duration). Manage risk accordingly.
Have a great weekend and see you in December!
Futures grain markets are closed this morning in observance of the U.S. Thanksgiving holiday but will open from 8:30AM – 12:05 PM CST today.
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