Oct 4 – Canola Prices Poised to Finally Break Out?

Grain markets this morning are mostly in the green, with canola prices notably breaking through a key level of resistance yesterday and still inching higher.

“It’s very refreshing to go away and take a break, to clear your head, and just get into something else.” – Francois Nars (French photographer)

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Canola Prices Poised to Finally Break Out?

Grain markets this morning are mostly in the green, with canola prices notably breaking through a key level of resistance yesterday and still inching higher.

After some of the tough travel I’ve had the last few days, we’re back in the saddle for the first FarmLead Breakfast Brief in a week! Last Friday, we were looking forward the USDA’s quarterly stocks report, which was released on Monday. The USDA ended up providing some bullish support to grain markets as both corn and soybean inventories as of September 1st came in below pre-report expectations.

September 1, 2019 American quarterly grain stocks report

On the macro front, broader equity markets tumbled a bit this week, finding new monthly lows. This was partially driven by the weakest U.S. manufacturing quarter in a decade. The debate amongst investors now is whether this is just a warning sign of an oncoming recession, or is it just a hiccup?

Rain vs Frost vs Harvest vs Planting

It looks like weather across the Midwest will trend drier over the next week, after the wet start to October. [1] This should give those crops still working on getting to a mature state a few more days to do so. [2] That said cooler temperatures are rounding the corner here, with Northern Plains and Great Lakes states getting closer and closer to that freezing mark. The I-states aren’t expected to see frost for another 2 weeks or so, a little beyond when frost usually shows up in the Corn Belt. [3]

While American farmers have been, for the most part, watching it rain over the last week or so, Brazilian farmers are waiting for some moisture to get their soybean planting campaign going. [4] The state with the most amount of soybean production, Mato Grosso, has only 2% seeded while #2 producer, Parana, is at 10%, the slowest start in the past 7 years. The problem is that both the near and long-term forecasts aren’t really calling for an abundance of rain: one model has fairly dry expectations for the next week while another is forecasting 75% of normal precipitation over the next 2 weeks.

That said, the USDA’s attaché in Brazil is forecasting a 2019/20 soybean harvest in brazil of 123.5 MMT, with exports estimated at 75 MMT. [5] Compare this to the USDA’s official estimate in the September WASDE of 123 MMT in production and 76.5 MMT of exports. On a related note, Rabobank said earlier this week that China’s hog herd was cut in half in the first 8 months of 2019, thanks to the ASF virus and they’re expecting that number to top 55% before the calendar year is done. [6]

A few weeks ago, I asked if the African Swine Fever could ever be solved and there’s limited evidence available today that suggests it can be. That said, it’s likely that we’re going to see some long-term ramifications to this significant reduction in the pork supply chain in the People’s Republic. [7] On the flipside, the U.S. pork value chain has room to grow and it’s likely that the industry could be coming up more in trade talks between Washington and Beijing. [8]

Canola Prices Break Resistance on Weather

Canola prices finally broke through some resistance levels as traders are starting to recognized the negative impact all the recent snow in Western Canada could have on the size of Harvest 2019. Canola prices on the futures board gained for its fourth straight day yesterday as less-than-ideal weather continues to plague the progress of Harvest 2019 for the oilseed (let alone other crops. Supporting canola prices a bit has been strong soybean values, mainly thanks to stronger export sales, including yesterday’s numbers of a little more than 2 MMT, which beat the pre-report expectations.

Historically, canola prices start to find some strength as we move in the fourth quarter of the calendar year, with values starting to temper out towards the end of November. Thereafter, canola prices are a bit stagnant in December before usually finding a little more momentum to the upside in January. This year, we’re likely seeing a fall rally in canola prices taking place a little earlier than usual given the headache that the snow has created.

Canola prices futures September 2019 performance

The “white headache” has been in every single province across the Canadian Prairies, grinding combining progress to a halt. [9] In talking to a few producers over the past week, I’ve heard their remaining fields left to be harvested described as “soup”, “muck”, “disgusting”, and “slop”. Like canola prices, hard red spring wheat prices have also started to find some strength, something I explored further in this week’s Wheat Market Insider for the Alberta Wheat Commission.

Minneapolis hard red spring wheat prices futures September 2019 performance

Overall, many areas will need to see sunshine and wind for a few days to get the combines back in the field. We certainly know that grain dryers are going to be going full tilt again until at least Christmas as grain tries to get dried down before delivering it to market. That said, we also know that, despite natural gas prices being relatively low, the Canadian carbon tax is ticking the bill higher on said drying costs. [10]

Have a great weekend!

To growth!

Brennan Turner
TF: 1-855-332-7653
@FarmLead on Twitter

Due to some further morning travel today, futures grain prices are not in this morning’s FarmLead Breakfast Brief but you can review them here.

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.

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