Oilseed markets rally to start 2018
Chicago soybean futures have been on quite a run to start 2018, extending their strong price rally to new contract highs amid deeper cuts to Argentina’s crop estimates.
Argentine weather is expected to remain mostly dry. What little rains do fall in the short term are expected to be mostly outside the driest areas and will struggle to offset evaporation rates as temperatures rise. That will keep many of the main growing regions under stress and will likely lead to additional reductions in Argentina’s soybean crop estimates.
Unusual weather market
It’s unusual to have a full-blown weather market in late February, but here we are. I’m watching for a time when Chicago soybeans and soymeal futures eventually falter, even with continued bullish weather in Argentina. When it happens, it could be a signal of waning bullish price momentum.
To keep upside momentum building, the soybean market must continue to be fed fresh bullish news.
To keep upside momentum building, the soybean market must continue to be fed fresh bullish news. At the same time, growers need to be prepared to use this Argentine crop-scare rally to potentially increase old crop oilseed sales (soybeans/canola) - perhaps even initiate new crop forward contracting.
Winnipeg canola futures have also been trending steadily higher since about mid-January, though the real run higher started around the beginning of February. Futures are now trading at their highest levels since the first week of December. Much of the recent futures price strength is tied to advances in Chicago soybeans and soymeal. Soyoil remained in the bearish doldrums, but we are now also seeing a modest turn upward here.
No shortage of cash canola
Make no mistake, there is no shortage of cash canola right now. And this market, while lately trending up, remains well-entrenched in its sideways trading range, is starting to push into the upper end of that range on the long-term price charts.
Argentina’s crop troubles are keeping the soymeal bull alive for now, though there are some whom already believe that story is close to now being baked into the market. Still, if the storyline of declining crop size persists, underlying price support for the meal market continues, which in turn supports soybeans, and down the line, canola.
Rising Canadian carryout?
Meanwhile, canola specific fundamentals are reasonably well-balanced but somewhat leaning burdensome from the supply/demand balance sheet perspective. The numbers right now suggest a turn to a rising Canadian carryout for this year and potentially in 2018-2019.
However, that does not necessarily foretell an eroding price trend, or a market that can regularly deliver profitable pricing opportunities for growers. On the contrary. Near-term demand, domestic use or exports, is sufficient in our opinion to provide support on any price moves lower.
To sustain an independent move higher and to inspire deeper discretionary demand, the canola market requires a production threat or needs to attain a period of relative cheapness in relation to competing oilseeds such as soybeans.
Oilseed markets remain supported as long as Argentinean crop projections continue to deteriorate.
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.