Nov 1 – Canola, Soybean Prices Look for November Direction

Grain markets are mixed entering November, a month that’s hopefully going to include a few trade deals with China, which would help canola and soybean prices.

“The fragrance of flowers spreads only in the direction of the wind. But the goodness of a person spreads in all directions.” – Chanakya (ancient Indian philosopher)

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Canola, Soybean Prices Look for November Direction

Grain markets are mixed entering November, a month that’s hopefully going to include a few trade deals with China, which would help canola and soybean prices.

Before getting into grain markets, on Wednesday, U.S. Federal Reserve dropped interest rates by 0.25% (or 25 basis points), the third time this calendar year that they’ve made a cut to keep the U.S. economy humming and out of a recession. [1] That said, Fed Chairman Jerome Powell said that no further cuts would be likely as long as the economy expands moderately, voicing some optimism.

Conversely, in Ottawa, the Bank of Canada held interest rates at their current levels, as they’re looking at economic challenges from a different angle than the U.S. Federal Reserve. [2] More specifically, the BoC’s Stephen Poloz is cautious against creating further incentive to borrow when household debt levels in Canada are already amongst the highest in developed economies/nations.

Weekly U.S. ethanol production numbers released yesterday shows that total volume so far in 2019/20 is tracking nearly 5% behind last year. The corn bears are certainly comparing that to the USDA’s forecast of production bumping up 0.4% from 2018/19. On the soybean side of things, we’re expecting to see the USDA say later this afternoon that all crushers (not just NOPA ones) used 161.8M bushels of soybeans in September (or 4.4 MMT if converting bushels into metric tonnes).

In some disappointing news, Chile has decided to walk away from its duties to host the Asia-Pacific Economic Cooperation summit later this month due to ongoing riots in their country. [3] It’s disappointing because it was expected that this is where U.S. President Trump and Chinese President Xi would sit down and sign “Phase One” of a new trade agreement.

While we know negotiations will continue over the phone today, President Trump tweeted out on Thursday that Phase One represents “about 60% of a total deal” that he’s looking to make. [4] In the meantime, grain traders are battling through the weaker international business (notably, corn and soybean exports), with Bunge CEO Greg Heckman saying on this past quarter’s earnings call, “I don’t know that we could see a much more difficult environment.” [5]

Where Do Soybean Prices, Exports Go Now?

With a trade deal teetering on the table, the market is looking for some sort of assurances in November that something is going to get done. As mentioned in Wednesday’s FarmLead Breakfast Brief, soybean prices and pork markets are watching each other very closely, with the latter being heavily impacted by very fluid supply and demand factors in China. Further, last Friday, I said that U.S. soybean exports are at a pivotal movement with China and that remains true today.

With nearly 8 MMT of soybean exports through Week 8, that’s tracking 6% over last year, but last year is when the trade war started. Soybean prices, instead, would like to see soybean exports tracking closer to their five-year average, or the grey line in its chart below. The next few weeks will be telling in terms of exports to China, and how soybean prices play out as a result. In yesterday’s exports report from the USDA though, China did account for more than half of the 943,600 MT of soybean exports that were contracted last week.

U.S. cumulative 2019/20 soybean exports through Week 8

That said, front-month soybean prices are technically performing 5% higher than they were a year ago. The better value of soybean prices is less likely to do with slightly stronger soybean exports, and more to do with the lack of crop progress, as mentioned on Monday. The delay of Harvest 2019 means that the Northern Plains are a few weeks behind, and soybean prices could be starting to take note. [6] We already know that basis levels on corn are pretty strong but expectations are that soybean basis could start to follow suit with further weather delays on the horizon.

Soybean prices front-month contract performance in October 2019

Canola prices are pacing alongside soybean prices with the similar dynamic that the market is looking for an increase of canola exports to China. That said, Canadian and Chinese officials chatted face-to-face this week in Switzerland at the World Trade Organization about Canadian canola exports. Through week 12, Canadian canola exports topped 2 MMT, good for about a 2% bump over the same week a year ago. That said, much like soybean prices, canola prices seem to be rangebound, looking for that next major supply or demand headline that’s going to bring the market to a new territory, be it lower or higher. [7] That said, it’s quite possible that a lot of the challenges with this year’s harvest have been factored in to current canola prices. [8]

Canola prices front-month contract performance in October 2019

Lentil, Durum Exports Cruising Along

Where there is some strength on the export front are lentils and durum. We know that lentil exports started hot out of the gate, which is part of the reason why we’ve seen lentil prices improve a little bit over the course of October. We know that India though is likely the main factor behind the improvement in lentil prices on concerns about their pigeon pea crop. [9] While green lentil prices have climbed up to 24¢ – 25¢ CAD/lbs, further gains are likely limited by geopolitical uncertainty in the Middle East and competitive export pressure from Black Sea producers.

Canadian cumulative 2019/20 lentil exports through Week 12

Similarly, Italy has returned to the Canadian market as they look for quality durum, supporting both Canadian durum exports, and therefore, Canadian durum prices. [10] Accordingly, durum exports are tracking 72% better than a year ago through Week 12 of the Canadian 2019/20 crop year. Understandably, with the increased international demand, as well as quality concerns from this year’s harvest, average durum prices in Western Canada for spot movement are sitting nearly a third higher than where they were a year ago.

Canadian cumulative 2019/20 durum exports through Week 12

Average durum prices in Western Canada for spot movement through October 25, 2019

Overall though, harvest isn’t finished yet, and there isn’t a lot of optimism for the crop that’s still left out in the field in Western Canada, be it the quality coming off, or just getting it off at all until springtime. [11] As the market moves its focus away from harvest, trade deals and broader market factors (i.e. exchange rates) will take a bigger spotlight.

Have a good weekend and if you’re still out in the field, keep safety a priority!

To growth,

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

At 7:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3163 
CAD, $1 CAD = $0.7597 USD)

Dec Corn: -1.5¢ (-0.4%) to $3.885 USD or $5.114 CAD
Jan Soybeans: +1.5¢ (+0.15%) to $9.338 USD or $12.291 CAD
Dec Soybean Meal (per short ton): +$1 (+0.35%) to $305.40 USD or $402 CAD
Dec Soybean Oil (cents per lbs): +0.04¢ (+0.15%) to 30.79¢ USD or 40.53¢ CAD  
Dec Oats: +3.8¢ (+1.25%) to $3.01 USD or $3.962 CAD
Dec Wheat (Chicago): -0.8¢ (-0.15%) to $5.08 USD or $6.687 CAD
Dec Wheat (Kansas City): unchanged at $4.198 USD or $5.525 CAD 

Dec Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.233 USD or $6.888 CAD
Jan Canola: -1.4¢ (-0.15%) to $10.36/bu / $456.80/MT CAD or $7.871/bu / $347.03/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.

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