Thinning out over Christmas — This week in the grain markets
This week, grain markets were dominated by thinner trading volumes — a bit ironic considering that Jolly St. Nick’s visit is just around the corner. While the volume was thin, the results of trading activity were mixed.
Canola price gains were weighed down this week by a stronger Canadian Dollar, only gaining 0.2% while the Loonie improved 1.15% to move back above 78 cents USD. This week we also saw European rapeseed prices on the Paris futures board hit a 16-month low. In fact, since early November, EU rapeseed values have dropped about 10%.
While that’s certainly bearish from the substitution effects perspective, canola stocks-to-use is at its lowest in 7 years. Further, because the majority of the European rapeseed crop has to compete with other vegetable oils on the biodiesel market, it does help canola a bit.
Oats was the biggest loser of the week, down 4.35% on what many were blaming to be farmer selling. Soybeans lost 0.65% as some bearish South American weather helped convince traders to take profits and head to the bar for some rum and eggnog.
Corn prices rallied 1.35% over the last week, or a couple of cents. Next levels of resistance are sitting around that $3.60 area, but if the market can push past that, it would be very positive. We certainly know that because of the increased soybean acres in Brazil, there’s likely to be a smaller safrinha/second corn crop, which could support values.
Safras & Mercado dropped their estimate for the Brazilian soybean crop by 130,000 tonnes to now sit at 114.57 million tonnes. If realized, this would be a new record soybean crop for Brazil, beating out the current record of 114.1 million tonnes (set last year). Comparably, the USDA is still sitting at 108 million tonnes for the 2017/18 Brazilian soybean crop. Safras & Mercado says that their lower forecast is because of them dropping their seeded area number to 87.7 million acres. For comparison, Informa recently raised its estimate for US soybean area in 2018 to 91.4 million acres.
Brazil’s southern regions are looking to get some moisture over the next two weeks. It’s a similar forecast for Argentina’s northwest and central regions, where fields are definitely looking for a drink. However, moving into January, there is more dryness forecasted, meaning the potential for South American weather premium building back into the market is definitely there.
Meanwhile, premiums are erasing in the Land Down Undaa. The Australian wheat and canola harvests are hitting full stride, and that’s putting pressure on prices in Australia. While farmers are harvesting, chickpea prices are sitting nearly 50% lower than what they were a year ago. And they’re not getting any help from India!
This past week, pulse markets got another back-handed slap as India announced they were re-instating their statutory import taxes on lentils and chickpeas of 30%. This includes those shipments that are already en route. Basically, the reason for the chickpea import tax is much like the peas and corresponding lentils tax: the Indian government is trying to support the increase of production of pulses domestically, instead of having to rely on imports.
Since we’ve seen lentils and chickpeas prices pull back a bit in recent months, one could argue that the market had already priced in some government intervention like this. For perspective, Last year in 2016/17, India imported 1.08 million tonnes of chickpeas (or garbanzos, as they’re commonly called in the US). About 85% of India’s chickpeas imports came from Australia, with Russia accounting for about 5%, the USA 1.4%, and Canada, less than 1%.
For lentils, it’s more impactful to Canada. Last year, in 2016/17, Canada exported 541,000 tonnes of lentils to India, or about 63% of all Canadian lentils exports. While last year might have been a statistical anomaly, on average over the past five years, almost half of all Canadian lentils exports were sent to India. On the flip-side, nearly 90% of all the lentils that India imported in 2016/17 came from Canada. So yeah, it’s significant.
Moving forward, it’s suspected that the Indian Rabi crop could produce almost 2.4 million tonnes of lentils and a record 9.5 million tonnes of chickpeas. The pulse taxes have certainly had an impact on prices for both old and potential for new crop bids. We do know that we have seen yellow peas prices rebound a bit since the import tax announcement six weeks ago. However, it’s widely expected that Western Canadian pulse acres will pull back in 2018 (although, chickpea prices continue to be very attractive!).
Looking forward, there appears to some colder weather on the horizon for most winter wheat producing areas. While there are many thoughts that the snow cover is currently thin – and that’s added some premium to wheat prices this week – it is winter time after all. We see these stories every December.
Perhaps some of this sentiment was recognized by the market as there was a broader sell-off of the wheat complex on the Friday before Christmas. Regardless, Chicago soft red spring wheat rallied 1.6% this week, while Kansas City hard red winter wheat added 1.3%. Conversely, hard red spring wheat prices in Minneapolis added 1.3%.
Overall, we know the next week in grain markets are likely to week. That is, as long as the headlines remain thin. If there’s some bearish or bullish sentiment present out there next week, you’re sure to see some volatility. However, without it, you’ll likely see some skinny trading action heading into 2018 (somewhat echoes many News Year’s resolutions, no?)