Grain markets are in the red this morning as the likes of canola prices and soybeans are all trading lower on WTI oil prices down more than 20% overnight.
“The health of the eye seems to demand a horizon. We are never tired, so long as we can see far enough.” – Ralph Waldo Emerson (American essayist)
Canola Prices & Food Demand in a Post-Lockdown World
Grain markets are in the red this morning as the likes of canola prices and soybeans are all trading lower on WTI oil prices down more than 20% overnight. North American producers are looking to optimize production before new production cuts around the world get implemented on Friday, May 1st. However, compounding things is the fact that there’s still no storage to put the new production!  Weaker oil prices intuitively weigh on other commodities, but nowhere more significantly than corn, soybean, and canola prices given their demand by energy sector.
On that note, hedge fund money got their most bearish they’ve been on corn prices since October, as speculators doubt the demand side of the equation, while penciling in 94M – 97M acres of corn getting planted this spring in the U.S.  Corn prices have rebounded since hitting a contract low of $3.01 last week, but that’s more likely to do with the buzz that China is looking to buy up to 30 MMT of agricultural goods to boost its domestic supplies and bring down their domestic prices. The bottom line though is that corn prices led the complex lower last week.
As mentioned in Friday’s Breakfast Brief, this also brings about a small dose of positivity for U.S. beans, namely in the soybean exports column. That said, managed money moved from a net long to a net short position last week in soybeans. After Friday’s liquidation, it’s rumoured that hedge funds moved to a net short position in Chicago wheat as well, albeit they continue to hold a new long in Kansas City wheat. Minneapolis hard red spring wheat has not seen a net long position held by managed money since September 2018, and own a net shot of 17,400 contracts as of last week.
Canola Prices: Who Wants Canola Exports?
The USDA’s attaché in Mexico says that although Mexico, like everyone else, is facing some serious economic challenges, “demand for oilseeds, mainly soybeans, is expected to withstand this global economic deceleration due to the relative inelasticity of food demand.”  I have my doubts believing this though as demand for oilseeds and feedstuffs is down around the world. Is Mexico any different? In fact, its food supply chains are likely more threatened than those in mature markets like the U.S. or Canada. Further, the strength of the U.S. Dollar has weakened the purchasing power of Mexican importers. The good news is that most agricultural commodities – including canola prices – have been inching lower.
Let us lean into this though: the USDA’s office argues that the demand for oilseeds is largely driven by continued demand from the livestock sector, as well as vegetable oil demand at the consumer level. For rapeseed/canola, Mexico is expected to purchase 1.3 MMT worth of international canola exports in 2020/21, up 50,000 MT from 2019/20. This is a result of continued weak production numbers (just 3,000 MT in 2020/21!) for the oilseed as government support to increase output remains minimal. Meanwhile, soybean production is estimated at 250,000 MT. Like canola, soybean imports should climb a bit from 2019/20, with the USDA’s office there estimating 6.1 MMT to be sailed into Mexico in 2020/21. While canola prices would appreciate the slightly higher imports, the aforementioned purchasing power may tell us a different story in a few months.
Looking elsewhere, the USDA’s attaché in the EU recently shared their perspective that “trade on the EU rapeseed market has virtually come to a standstill.”  Despite remaining supplies held by the European farmer near nothing, rapeseed crushers are well supplied through the end of the EU rapeseed crop year (which runs July to June). However, due to neonicotinoid bans, rapeseed has become more costly to grow. Thus, because it is now illegal to use science to help grow a crop in the EU, rapeseed acres and production are expected to continue to trend lower. Finally, since rapeseed oil for the biodiesel industry is the main driver of the rapeseed market in EU, with less people driving their cars in a COVID-19 world, this unfortunately means less demand anyways. Thus, like oil prices, there is some bearish demand pressures for rapeseed / canola prices in Europe.
Coming back to North America, canola demand is said to be stable as crushers shift their attention from food processors and restaurants to the consumer market.  That said, international demand for Canadian canola exports has been relatively unchanged as well with 7.05 MMT sailed through Week 37, good for about a 5% bump compared to a year ago. We’ll need to be closely watching canola exports over the next few weeks though as it could be a indication for what we should expect as we flip the crop year calendar into 2020/21.
Speaking of the new crop year, Agriculture Canada came out last week with their April estimates of the Canadian supply and demand balance sheet. In it, Agriculture Canada said that domestic crush for the current 2019/20 crop year are running at record levels, which is helping support canola prices. And as they believe that COVID-19 should not stop their forecasted record of 9.8 MMT of canola to get processed in Canada, Agriculture Canada also is forecasting Canadian canola exports to bump up 4% year-over-year to 9.5 MMT in 2020/21. They’re basing this on “support from a slow and steady growth in world consumption of vegetable oils and high oil content oilseeds.”
While I’m not doubting the general interest, I’m just not sure the slow and steady growth is still there. Combined with Agriculture Canada’s estimate of domestic crush falling to 9.3 MMT in 2020/21, they think that canola ending stocks will fall to 2.7 MMT, meaning a modest price increase for canola prices. In the near term, while Plant 2020 conditions are shaping up to look decent, there’s still a few canola fields from Harvest 2019 that are getting wrapped up. That said, I urge to not take the significant discounts posted at the elevator on your spring-threshed canola and instead, put it onto our Combyne cash grain marketplace. As there’s no trading/transaction costs, you literally have nothing to lose by Listing that canola (or any other spring-combined crops) on Combyne.
An Emerging World Without Lockdowns But…
There is some buzz about more easing of lockdown restrictions around the world, and while this is a positive sign to get economies going again, it’s important to recognize that we won’t be anywhere close to normal still. Yes, getting a haircut and maybe going to a restaurant would be great (my hair right now is getting close to qualifying for Minnesota State All-Hockey Hair team), but there’ll be capacity limits. Put another way, you’ll be looking at longer wait times, but at least you’ll have the freedom to move around!
In the meantime, prices for food staples continue to trend higher, with cut-out prices for beef hitting record highs this past week.  After nearly 2 months of being in lockdown, the world’s population has been changing how it eats.  That said, I estimate that meat-processing plants, once re-opened, will be operating at 60-70% of capacity as they look to minimize the spread of COVID-19 again. Ironically, while wet markets stay open in China, our meat markets will likely shoulder additional regulatory responsibilities. And in the meantime, environmental activists are blaming COVID-19 on animal agriculture! 
That said, Canada and the U.S. are not the only country who’s seeing meat processing plants go idle as Brazil looks like they’re starting to deal with the same issue.  With things like vegetables (especially potatoes) and meat ready to go to market, but way less processors open, and a commercial market that’s basically dried up, many producers are facing business-killing costs.  One suggestion to help these producers is to ask them and local butchers about processing capacity, and trying to get your city-dwelling relatives or friends to buy a bunch. They want to eat local? Here’s their chance!
Nonetheless, without government assistance (especially like that seen in the U.S.), governments are effectively now either a catalyst to these farm businesses closing, or a rescuer.  How do we remind the politicians that, without agriculture, they’d be hungry, naked, and sober? On the flipside, this is probably the best time to looking inward at your own operation to find either areas that you could cut costs on a bit, and/or functions of your business to build up/make more resilient.  After all, the rule of thumb in the business of politics is to never waste a crisis, so neither should you.
Fill your to-do list and let’s get at ‘er this week!
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 = $1.4058 CAD, $1 CAD = $0.7114 USD)
July Corn: -6¢ (-1.85%) at $3.17 USD or $4.475 CAD
July Soybeans: -2.5¢ (-0.3%) to $8.37 USD or $11.815 CAD
July Soybean Meal (per short ton): -$0.20 (-0.05%) to $292.40 USD or $412.76 CAD
July Soybean Oil (cents per lbs): -0.37¢ (-1.45%) to 25.13¢ USD or 35.47¢ CAD
July Oats: -3.8¢ (-1.3%) to $2.798 USD or $3.949 CAD
July Wheat (Chicago): -5.3¢ (-1%) to $5.253 USD or $7.415 CAD
July Wheat (Kansas City): -3¢ (-0.6%) at $4.803 USD or $6.779 CAD
July Wheat (Minneapolis): -2¢ (-0.4%) to $5.113 USD or $7.217 CAD
July Canola Prices: -0.7¢ (-0.05%) to $10.41/bu / $459/MT CAD or $7.374/bu / $325.16/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.