Except for canola prices trading on the ICE futures board, grain markets in the U.S. are only open for a few hours today because of the U.S. Thanksgiving holiday.
“Change before you have to.”
– Jack Welch (American Businessman)
Canola Prices Digging a Deeper Hole
Except for canola prices trading on the ICE futures board, grain markets in the U.S. are only open for a few hours today because of the U.S. Thanksgiving holiday. People will have about four hours to wake up from their turkey coma, check the screen, and then go out for Black Friday shopping (I got coerced into doing some last night myself albeit completely online!)
Cliff Jamieson from DTN notes that over the U.S. Thanksgiving holidays, canola prices on the futures board tend to fall a few bucks a tonne.  This year though, canola prices were relatively stable thanks to a very, very quiet trade (albeit they are slightly lower this morning). 
In the shortened trade, the markets are watching for any news on trade negotiations between the U.S. and China. Weather out of South America is usually a catalyst for this time of year, but we do not see many issues this year (more on this later).
Australia Opening up Some Doors
In the November WASDE, the USDA lowered Australian barley production to 7.4 MMT. This is still 500,000 MT higher than the current estimate from ABARES.
COFCO, the major Chinese food player, says that Australian barley owns about two-thirds of the Chinese market, accounting for about 4 MMT of China’s 6.5 MMT of total imports. However, these numbers are based on average Australian barley production of nearly 9 MMT. Considering this year’s barley harvest in the Land Down Undaa will be 2 – 2.5 MMT below this, can they export the same amount to China? Likely not! Further, China is currently launching an investigation into the pricing of Australian barley! 
Currently, the USDA is forecasting Australian total barley exports at 5.7 MMT, but ABARES thinks it’ll be closer to 5 MMT. This is, in part, because Western Australian barley buyers/exporters are making more money shipping it over to the eastern side of the country, where barley prices are at record levels, instead of to China and other southeast Asian markets.
So who can fill the Chinese demand that’s going to impossible for Australian barley to meet, especially that of malt barley?
On that note, the International Grains Council notes that world feed barley prices are getting pretty expensive relative to corn prices. Currently, feed barley prices have been trading at a premium of about $75 USD/MT (or $1.65 USD and $2.15 CAD per bushel) to corn prices. This is the highest in the last ten years. At that sort of level, it’s very likely that substitution effects will start to take over and extremely cheap corn will start to move into these markets. One example of this already happening is in Europe where EU corn exports are sitting at 6.6 MMT through November 11, up 24% year-over-year.
Canola Prices Waiting for Exports?
While Agriculture Canada put out their crop outlooks two weeks ago, this week they needed to revise the 2017/18 portion of the balance sheet. While ending stocks were kept completely the same, AAFC said that “the disposition data for canola, flaxseed, barley, oats, rye and dry peas was in need of revision.” A bit suspicious but we’ll take it on the chin and keep going.
One of the things that AgCanada did revise lower was 2017/18 canola exports. However, they’re still expecting a record 11.5 MMT of canola exports this year in 2018/19, despite the campaign tracking more than 5% behind last year’s pace with 3.13 MMT shipped out so far through Week 16.
Remember that, at this time a year ago, canola and soybeans were starting to rally on South American planting concerns. This year though, soybean planting in Brazil is cruising at a record pace, and the weather has been near perfect, which has led to AgroConsult recently suggesting that total soybean production could reach 129 MMT. This would align with their effort to keep shipping soybeans to China at a record pace. Next door, beans in Argentina are slowly but surely getting into the ground at an average pace.
What this all adds up to is canola prices drifting lower than in years past.
Ultimately, canola prices are looking for a demand function to jumpstart things again. While we did see a new crop-year-best of canola exports of nearly 400,000 MT in Week 15, cumulatively, things have been slow. On the domestic side, we are tracking relatively in line with last year and the seasonal average, but the status quo is helping work through what is the second-largest crop in Canadian history. If the market can see some fresh demand headlines, that’s what will get canola prices excited again.