Oilseed markets balance big supply vs big demand

Highlights

  • Oilseed market seasonals tend to point higher into late November 
  • The soybean price trend for now will likely grinds along its upward price channel established from the mid-August low 
  • November canola futures are threatening a test of overhead chart resistance at $500 per tonne

On Oct. 12, the U.S. Department of Agriculture released its updated monthly supply/demand report. A combination of a slight trimming of U.S. national average yield to 49.5 bushels per acre and a small increase in the harvested acreage projection meant the agency held its estimate of 2017 U.S. soybean production unchanged from September at a record large 4.431 billion bushels. U.S. bean ending stocks for the 2017/18 marketing year were adjusted down to 430 million bushels, below trade expectations and down from 475 million projected a month ago.

On the surface, the numbers were not particularly bullish for prices with a record large U.S. crop and more than comfortable ending stocks. Still, Chicago soybean futures responded with a notable 35 cent per bushel rally to close out last week.

Based on strong seasonal market tendencies going forward into November, ongoing and probable understated demand expectations and any possible La Nina weather scare, it felt like the soybean market was hoping to buy a bearish knee-jerk reaction to soybeans from this report. When bearish reaction didn’t occur, traders bought beans anyway. 

Soybean futures

To start this week, Chicago soybean futures have pulled back some of those USDA report-inspired gains as drier expected weather should enable a resumption of general harvest operations across the U.S. Midwest.

Demand remains solid for U.S. soybeans. Also, the market's forward curve (series of futures spreads) remains neutral long-term, meaning commercial traders are not convinced or concerned over projections of record U.S. bean production.

Chartwise, November bean futures have fallen back from last week’s test of chart resistance at $9.99 per bushel. This price marks the 61.8 per cent Fibonacci retracement level of the previous downtrend from $10.47 through the low of $9.21. The contract hasn't ended its minor uptrend, but the bulls need to show up soon again or the market will lose upward momentum and could slide further.

But, I suspect the soybean grinds along the upward price channel established from its mid-August low for now.

Canola futures

Meanwhile, Winnipeg canola futures gained some positive spin from the USDA report’s initial bullish influence on the soybean market, but in a more lagged fashion. The nearby November canola futures contract tested up to psychological overhead resistance at $500 per tonne, but has not managed to close above that level to the time of writing (Oct 17), though it is threatening to do so.

The 2017/18 canola marketing season so far remains a general continuation of what we have seen for much of the past two years, an environment characterized by big supply versus big demand in what should be a broad sideways price range.

Feels like speed of delivery inflow occurs faster than speed of demand. But, that said, demand for both export and domestic crush is now also ramping up notably.

During the harvest season it is not surprising that the canola market feels well supplied given an aggressive flow of off-combine deliveries. It feels like speed of delivery inflow occurs faster than speed of demand. But, that said, demand for both export and domestic crush is now also ramping up notably.

After coming off the September low, canola futures are finding a point of equilibrium between supply-and-demand issues. But, seasonality of price for both canola and soybeans tends to be positive moving forward into the end of November, and odds favour at least one South American weather scare.

Bottom line

In my opinion, sell-offs at this time are not likely to be sustained. But, sufficient supply is available which doesn’t take much rally or cash basis induced incentivizing when needed to draw farmer-owned canola into the commercial pipeline.

Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit  www.pfcanada.comto find out more about his services.