Grain markets this morning are mixed, led by the divergence in soybean and canola prices, with the latter now down almost $25 CAD/MT since last Monday.
“Take care to sell your horse before he dies. The art of life is passing losses on.” – Robert Frost (American poet)
Mar. 4 – Can Canola Prices Minimize Losses to Soybeans?
Grain markets this morning are mostly green, but the divergence in soybean and canola prices continues, with the latter now down almost $25 CAD/MT since last Monday. Winter wheat prices are rebounding this morning as well after Chicago SRW values had its worst one-week perform in 6 months.
Moving forward, we start the first full week of March with some news that trade negotiators from the U.S. and China are getting much closer to completing a trade deal.  In fact, U.S. President Trump said this on Twitter on Friday evening: “I have asked China to immediately remove all Tariffs on our agricultural products (including beef, pork, etc.) based on the fact that we are moving along nicely with Trade discussion.” 
It’s been suggested that a deal is trying to be finalized before the end of the month. The main sticking issues that remain appear to be IP and China’s industrial policy, which the U.S. side argues that the Chinese have an unfair advantage since their domestic firms are heavily supported by the government.
This is especially true for state-owned enterprises like COFCO, who, despite being in the global food trade game for about 4 years, are already rivaling century-old firms like Cargill and Louis Dreyfus in terms of size of trading book.  Given that China is now importing close to $120 Billion USD worth of food every year, it’s not really a surprise that China has been backing the players in their own stables versus relying on outsiders. Quick sidenote: Brazil exported 6.09 MMT of soybeans in February, a record for the month and the 10th-straight monthly record. 
Canola Prices Losing to Beans
Coming back to the People’s Republic, in last Friday’s Breakfast Brief, I talked a bit about wheat exports and the lower soymeal demand situation in China. For the latter, we certainly know there’ll be less hogs in China for the 2018/19 marketing season but we also have to mindful of substitution effects. For example, soybean crush margins are improving in China as rapeseed meal is in short supply. The reason behind is mainly political: the Chinese have been reportedly limiting the delivery of Canadian canola boats, but also the Ministry of Agriculture of the People’s Republic has been rejecting GMO safety certificates that were submitted by the rapeseed importers.
For perspective, the USDA currently pegs total Chinese canola / rapeseed imports for 2018/19 at 4.715 MMT, up 255,000 MT from their December estimate.  Of this number, it’s estimated that more than 90% of that will come from Canada. On that note, the Canadian government is allowing the US extradition of the Huawei CFO to proceed, with the first hearing taking place on Wednesday, March 6th.  Simply put, Canadian-China relations are in rocky spot, and it could be soybeans that benefit.
Last week, canola prices hit new contract lows literally every day, with the May contract losing almost $8 CAD / MT on Friday alone to close at $461.30. That meant canola prices dropped more than $20 in one week. As mentioned, the May contract is down another $4 to start the week.
That matched the performance for the entire 4 weeks of February, as May 2019 canola prices lost $20.40 or 4.2%. The November 2019 contract for new crop canola prices lost $9.60 or 1.9%. On the cash front, spot canola prices fell about 4%, while new crop canola prices for September movement lost 2.6%, which included basis widening by about 1%.
When compared to soybean prices (and as mentioned last Friday), canola prices have been losing the battle. Soybean prices have clearly been more resilient, albeit they also saw some significant losses last week.
However, for the month of February, soybean prices on the futures board in Chicago lost 1.9% (or about 18¢) on the May 2019 contract. November 2019 new crop soybean prices in Chicago lost about 12¢, or 1.2%.
When Will Winter Wheat Prices Find Their Low?
One the of crops that has not been resilient at all is the winter wheat complex. For the month of February 2019, both the Chicago and Kansas City futures boards saw their respective winter wheat prices drop more than 60¢ USD/bushel. About half of this loss came last week alone, including the Chicago soft red winter wheat prices falling 7% to close at a measly $4.57.
Comparably, hard red spring wheat prices in Minneapolis only lost 6-10¢ USD/bushel last week across the next 5 contracts. On the cash front in Western Canada, we’ve seen hard red spring wheat prices also pullback a bit, although new crop basis continues to inch higher. In my opinion, this new crop basis on HRS wheat prices are hard to ignore, especially if you compare them to a year ago. Further, I’m starting to wonder if the bigger HRS wheat acres in Canada and the U.S. are being fully priced in or not. 
Conversely, the US Wheat Associates noted last week that winter weather (namely snow) has been limiting grain movement.  Accordingly, basis levels for wheat at most ports jumped about 20¢ USD/bushel for both spot and deferred delivery. Also likely having an impact on the jump in basis is the lack of farmer selling, especially in winter wheat. After all, it’s pretty hard to pull the trigger when the market drops by an aforementioned 7% in one week!
Overall, grain markets continue to sit in a technical and fundamental position of selling. You could easily argue that between trade war talks and the WASDE report on Friday, should there be some bullish headlines this week, you could see values rebound quickly, especially in wheat and canola prices.
At 7:50 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3299 CAD, $1 CAD = $0.752 USD)
May Corn: +3.3¢ (+0.85%) to $3.763 USD or $5.004 CAD
May Soybeans: +6¢ (+0.65%) to $9.175 USD or $12.202 CAD
May Soybean Meal (per short ton): +$2.20 (+0.7%) to $309.60 USD or $411.73 CAD
May Soybean Oil (cents per lbs): +0.03¢ (+0.1%) to 30.27¢ USD or 40.26¢ CAD
May Oats: +4.3¢ (+1.6%) to $2.685 USD or $3.571 CAD
May Wheat (Chicago): +1.8¢ (+0.4%) to $4.59 USD or $6.104 CAD
May Wheat (Kansas City): +2.8¢ (+0.6%) to $4.475 USD or $5.951 CAD
May Wheat (Minneapolis): -1.5¢ (-0.25%) to $5.568 USD or $7.404 CAD
May Canola: -7.3¢/bu (-0.7%) to $10.39/bu / $458.10/MT CAD or $7.812/bu / $344.47/MT USD
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