Bearish chill blows across grain markets

Market Focus

Highlights

  • Grain markets have been trending lower this month
  • Large South American crop production could soon displace North American exports
  • Strong demand limits canola declines, but waning vegetable oil markets create headwinds

Grain markets softened notably in March as traders shift their attention tolarge and climbing South American crop estimates. Exports out of North America remain solid to date, but there are heightened expectations that availability of Brazilian soybean and corn supplies will shift buying interest away from United States shipments going forward.

U.S. wheat futures also face pressure as the market remains in a follower's role to corn and soybeans. While dryness builds on the U.S. Plains, winter condition ratings have yet to post any major decline. Also, abundant stocks of wheat in the U.S. and around the world blunt concerns.

While the southern plains hard red winter wheat areas will remain dry this week, there is the prospect of improved moisture conditions in the extended outlook.

Prairie farmers likely won’t chase cash canola; prices lower at this time.

Oilseeds

Since peaking out at $10.84 a bushel on Jan. 18, Chicago May soybean futures have steadily eroded lower. They broke below the 200-day moving average ($10.20) with the bearishly construed U.S. Department of Agriculture supply/demand report on March 9. Now, soybean futures are testing down to an important low on the chart around the $10 level.

On Thursday, March 9, the USDA revealed it boosted its estimate of South America soybean crop production, notably increasing their projection of the Brazilian crop by four million tonnes to a new record large 108 million tonnes - the high end of trade expectations.

The Argentine crop estimate at 55.5 million tonnes is unchanged from a month earlier. Trade opinion was that Argentina would lose five to 10 per cent of its soybean crop due to earlier flooding issues.

The end result - increased world soybean ending stocks numbers - climbing to 82.82 million tonnes, up from 80.38 million tonnes projected last month.

This latest USDA report has likely changed market psychology due to confirmation of this much larger Brazilian crop. Market complexion is setting up differently than this time last year when the speculative managed fund money was positioned on the short side of the market just as realization of a South American crop shortfall was coming to light. That triggered a spring rally in bean futures as there was increased reliance on U.S. bean exports going into the spring season. This year, it seems the record large American soybean crop harvested last fall is now being matched and surpassed by this season’s record South American crop at a time when the speculative funds are holding a precarious net long.

Canola

While holding up better than the soybean market recently, Winnipeg canola futures are also deteriorating, nearby May contract slipping below chart support at both the 100-day moving average ($523 a tonne) and the 50-day average ($521 a tonne) have now breached.

We had upward trendline support drawn from last August's lows which crosses at about $517. The next support line is the 200-day average down at $508, which coincides with support at the January lows around $505.

Conversely, May canola futures have flirted with massive overhead resistance in the $530 to $545 a tonne region. That marks the three year highs on the weekly canola chart, and falling back on these multiple tests since the start of 2017 so far.

While downside price risk now seems limited due to strong export/crush demand and the prospect of tightening old crop supply by summer, rally extensions also seem limited. That seems especially true with global soy and palm oil markets steadily weakening, which impair crush margins.

Prairie farmers likely won’t chase cash canola prices as they’re lower at this time, and demand for canola remains price supportive. However, the canola market is not an island in the global oilseed community. If palm oil, soy oil and European Union rape seed all push lower, it will force increasing headwinds onto our canola market as well.

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.

Related

Grain market update: Focus on wheat

Grain market update: Focus on wheat

Grain market update: Focus on wheat

Grain market update: Focus on wheat

A look at the latest happenings in the grain markets, with a particular focus on wheat.

U.S. acreage and stock reports set table for spring markets

U.S. acreage and stock reports set table for spring markets

U.S. acreage and stock reports set table for spring markets

U.S. acreage and stock reports set table for spring markets

USDA released its Prospective Plantings and U.S. Quarterly Grain Stock reports on March 31. Here are the highlights.

Wheat rally pauses

Wheat rally pauses

Wheat rally pauses

Wheat rally pauses

Wheat market prices have been decent since Christmas, but I think it's time to sell another increment.

Add a Comment
Add a Comment Close
characters remaining
There are no comments.