Grain markets are in the green as New Cold War buzz continues to build, canola exports and prices are looking to a court ruling today on the Meng Wanzhou case.
“No matter how bad any situation, cynicism has no positive impact. Watching the news, you might notice that cynicism and victimhood often seem to go hand-in-hand, but not for veterans.” – General James Mattis (former U.S. Secretary of Defense)
As this past Monday was Memorial Day, I want to share my appreciation for current and former military servicemen and women, as well as those who have died fighting for our freedom. May they rest in peace, but never be forgotten.
Soybean, Canola Exports Watching China Closely
Grain markets are in the green as New Cold War buzz continues to build, canola exports and prices are looking to a court ruling today on the Meng Wanzhou case. While I’ll dig into the impact on canola exports in a bit, this has broader implications in the Canada-China relationship. That said, China seems to be rubbing everyone the wrong way these days, with India coming into the anti-China camp after a large contingent of Chinese soldiers set up multiple camps deep inside Indian-controlled territory in the Himalayas. 
With the Chinese economy contracting last quarter for the first time in DECADES, China decided to weaken its currency, which gives other countries stronger international purchasing power.  Now, the Chinese yuan, relative to the U.S. Dollar, is the weakest its been since the financial crisis of 2008 but currency analysts expect it to continue to weaken, the longer the riff between Beijing and the rest of the world goes on.
Of course, this makes it more expensive for China’s importers to buy aboard, namely from the United States, which is significant for grain and oilseed exports. On that note, April customs data showed us that China imported 6.175 MMT of soybeans, down 12% year-over-year.  This included 5.94 MMT of Brazilian soybean exports (+3% YoY but also nearly triple March 2020’s shipments to China), but just 665,600 MT of U.S. soybean exports (-62% YoY).
Going forward, it’s expected that soybean imports by the People’s Republic in May, June, and July will average 9 MMT, which would be well above-average, if realized. On the flipside, U.S. soybean exports, through Week 37, are tracking just 3.5% ahead of last year with 35.1 MMT sailed (or 1.29 billion bushels if converting metric tonnes into bushels). With 15 weeks of the 2019/20 crop year left to go, it seems like we’ll be able to meet the USDA’s total 2019/20 crop year forecast of 45.6 MMT of American soybean exports.
Plant 2020 Wrapping Up
88% of the U.S. corn crop is now in the ground as of this Sunday, well above last year’s 55% at this time and slightly above the 82% seasonal average.  From a crop quality standpoint, 70% of corn fields were judged to be in good-to-excellent (G/E) condition, which is well above the 59% G/E rating at this time a year ago, but in line with the long-term average. Unless demand starts to pick up, I think that this pace of planting & start for the U.S. corn crop is going to get more bearish on corn prices.  Put another way, we need ethanol demand to improve and we need it soon.
For soybeans, 65% of U.S. fields have been planted, slightly below what was expected, but well above the 26% seen a year ago and the seasonal average of 55%. Planted HRS wheat acres in the U.S. are also picking up their feet as 81% of the crop is now in the ground, in line with a year ago, albeit still slightly behind the 90% average. That said, there’s still a lot of acres in the Dakotas and Minnesota that are likely going to go into Prevent Plant for the second year in a row. Since the final planting date for North Dakota was on Monday, there’s less corn likely to get planted in the Roughrider State.  From a weather standpoint, an updated three-month outlook from the NOAA suggests most U.S. growing regions will normal temperatures over the summer, but that things will be wetter than usual. 
2020/21 Canola Exports & Prices
Canola prices lost some love from traders last week as it fell to two-week lows on weakness in the soy complex, as well as hitting some technical walls of resistance. That said, there is some bullishness for canola as, in their May supply and demand estimates released last Friday, Agriculture Canada noted “the COVID-19 pandemic appears to have had minimal impact on canola demand”, as strong purchasing by the EU and UAE in March and April helped canola exports. 
That said, through week 41, cumulative canola exports are now tracking 6.4% above last year with 7.84 MMT sailed. Therein, with the stronger canola exports, Agriculture Canada raised its 2019/20 forecast of total canola exports by 500,000 from their previous estimate to 9.6 MMT. 1.76 MMT of canola exports over the next 11 weeks? Seems doable, no? Further, Agriculture Canada increased domestic use by 150,000 MT and while a 50,000 MT increase in imports is worth noting, ending stocks were lowered by 600,000 MT to 2.6 MMT. For perspective, Agriculture Canada was estimating 2019/20 canola ending stocks as high as 4.7 MMT back in November.
From a new crop pricing standpoint though, canola prices have gradually headed lower since mid-January, which is exactly what I warned of in my canola prices outlook, which I timestamped on January 8th. That said, this time a year ago, we did see a little bit of an improvement for new crop canola prices as weather concerns creeped into the market. This year, it seems that the pace of seeding is starting to spook canola traders and there’s increasing speculation that the 20.6M acres projected by StatsCan earlier this month won’t be realized. On a basis front, average new crop values across Western Canada have been creeping up as well.
D-Day for Canola Exports to China?
Separately, a decision is expected today in the Meng Wanzhou court case out in Vancouver, as the B.C. court will rule on “double criminality” – whether the Huawei CFO being accused of a crime by the U.S. is in fact a crime in Canada.  Obviously, Canadian and China relations have faltered since she was arrested last year, and soon thereafter, China canceled the export licenses of Viterra and Richardson, which pushed canola prices lower from February 2019 onward (and as reflected in the chart below).
If the Canadian court rules against Ms. Wanzhou, there could some further negative impact on Canadian canola exports. However, if China looks to source elsewhere, it’ll just create a game of musical chairs for canola exports (i.e. more Aussie canola going to China instead of Europe means more Canadian canola exports to the EU). That said,
On that note, I, like many others continue to expect the EU to keep buying Canadian canola.  This is mainly because the biodiesel market in Europe is starting tor rebound, but also because the rapeseed crop size there continues to be downgraded. More specifically, Strategie Grains is now forecasting 17 MMT for a 2020/21 rapeseed crop, matching last year’s haul, which was the smallest since 2006. 
While I’m already 15% sold on new crop canola from back in January, there is an interesting opportunity to lock in something off the March 2021 futures, as it’s paying nearly $14 CAD/MT better than the November 2020 contract.  Comparably, the Saskatchewan Canola Council, in their May update, suggested to hold off on any “additional old crops sales while selling up to 35% of new crop canola.” 
Bottom line, Canadian canola crush and European rapeseed crush volumes continue to be strong. The former is obviously supportive of domestic movement, the latter for canola exports, and thus the significant drawdown in Agriculture Canada’s expectations for ending stocks. The big kicker this year though will be actual acres seeded; I personally think that StatsCan’s canola acreage number is high, as farmers look to reduce some risk and potentially chase the multi-year highs in peas, lentils, and durum prices.
P.S. still some old crop $9 CAD/bushel durum being sought on the Combyne Marketplace; hit the “Connect” button with that buyer so you get notified of all future deals from them (plus, when you List some old or new crop, they’ll be notified too!)
P.P.S. if you’re wondering what my new crop sales outlook for wheat is, you can find it in my weekly Alberta Wheat Commission’s Wheat Market Insider column here.
@Combyne or @FarmLead on Twitter
At 8:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3748 CAD, $1 CAD = $0.7274 USD)
July Corn: +1.5¢ (+0.45%) at $3.205 USD or $4.406 CAD
July Soybeans: +4¢ (+0.45%) at $8.51 USD or $11.699 CAD
July Soybean Meal (per short ton): +70¢ (+0.25%) to $284.60 USD or $391.26 CAD
July Soybean Oil (cents per lbs): +0.34¢ (+1.25%) to 27.61¢ USD or 37.96¢ CAD
July Oats: unchanged at $3.313 USD or $4.554 CAD
July Wheat (Chicago): +2.5¢ (+0.5%) to $5.093 USD or $7.001 CAD
July Wheat (Kansas City): +4.5¢ (+1%) at $4.518 USD or $6.21 CAD
July Wheat (Minneapolis): +1.3¢ (+0.25%) to $5.19 USD or $7.135 CAD
July Canola: +7.7¢ (+0.75%) to $10.619/bu / $468.20/MT CAD or $7.724/bu / $340.57/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.