Oilseed markets carving out bottoms
There are mixed results for grain market activity since the start of the new year.
The most notable is the rally in Chicago soybean since the Jan. 12 release of United States Department of Agriculture crop data. The soybeans price trend early in the week is upward as last weekend's rains across central and southern Argentina were limited and forecasted to remain so over the next 14 days.
South America weather
Heavier rains were seen for the northern third of Argentina, with Brazil continuing to see regular precipitation. For the most part, the rain in Brazil is beneficial, but with early soybean harvest starting, there may be increased talk of harvest delay concerns.
Trade estimates of the Argentine soybean crop are slipping to 52 to 54 million tonnes (USDA still projecting 56 million), but the Brazilian soy crop is creeping higher to 112 to 114 million tonnes as an offset.
Traders also noted a bullish price response this week to news that the speculative funds were sellers of 10,562 soybean contracts in the week ended Jan. 16, short 103,397 contracts to that date. The logic here is that the speculative-managed money crowd does not typically hold such a large net short in soybean futures for a significant amount of time.
Nearby March soybean futures started the week above its 50-day moving average ($9.83 per bushel) for the time since Dec. 8. Earlier this week, prices were up 35 cents from the Jan. 11 low.
The technical situation in the soybean market has improved, signaling futures may have reached their lowest price. There may be potential for current trading prices to increase in the short-term.
This bean rally seems, for now, to be overlooking the bearish market impulses of improving Brazil soybean crop prospects and that the USDA likely overstated the 2017-2018 soy demand and is retesting seven month lows on March soybean oil futures.
Ample global soybean supplies will limit the market’s overall upside potential, but the bean market in the past has tended to provide a profitable opportunity to make cash sales - and PFCanada expects it to be no different in 2018.
Winnipeg canola futures continue their daily see-saw, but overall, languish within the confines of a broader sideways trend, with no clear movement up or down. Positive trending soybeans serve as a source of support for the canola market, but the continuing bearish influence of weak vegetable oil markets limits price strength.
Price action so far in 2018 has been a continuation of generally range-bound trade. Overhead technical resistance for the nearby March canola contract initially comes into play at the $500 a tonne level, with underlying support in the $485 to $490 zone holding up well on the last two moves down to that level.
Whatever the daily news flow, the nearby canola future has generally been bound by $480 to $530 for over a year now. If we stretch the view out to three years, the range is $450 to $530 per tonne.
Prairie cash basis has shown some signs of improvement since the start of the month, isolated and biased more to Western Canada crushers, though more elevator points have seen improved cash basis in the past week. This is a sign of a growing need for cash canola in the commercial pipeline.
Canola demand will most likely come in spurts this winter season, meaning we must remain realistic on upside price objectives.
While this is not an outright bullish price signal for the canola market at this time, it may be a sign the canola market is attempting to carve out some type of bottom, which is a process that likely takes time - it's just setting some bottoming action.
Ideally, we would like to see a stronger Vancouver cash market for export. Without it, demand will most likely come in spurts this winter season. That, in turn, means we must remain realistic on upside price objectives.
The current soybean rally seems to be happening despite bear market impulses, however, there's ample global supplies which will limit the market's overall upside potential.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.