From the fall of last year to today, which is Feb. 16, it has been a momentous time for grain markets. And as good as that is, Mike Jubinville, a senior markets analyst for MarketsFarm, stressed time and again during MarketsFarm’s Markets Outlook 2021 webinar last month, that incremental selling into these profitable and rising markets is the “strategy of the day.”
“As we all know, these markets can humble us quickly, even before the reasons justifying any turndown in price arise,” he said.
Jubinville shared many insights on cereals, oilseeds and pulse markets. I thought I’d take you through some of his soybean and canola market highlights, which will wrap up my look at markets in this column for the present time. I’ll be tuning in to the next webinar in this markets outlook series on March 11 — I hope to see you there.
Soybean market recap
China has been rapidly rebuilding its hog production after African swine fever knocked it down significantly, and that’s building what has been identified this year as a demand-pull marketplace, said Jubinville. The latest report is China is at about 90 per cent of where it was in terms of overall hog production, which is the largest in the world with up to 700 million head of hog every year.
The rebuilding process is ongoing and has created real demand for feed for their livestock sector, including soymeal. And China has been very aggressive in oilseeds, pulses and cereal grains as well, added Jubinville. “Demand-pull seems to be the theme for grain markets so far this marketing year.”
U.S. soybean exports have been very strong with a lot of this product going to China. U.S. soybean ending stocks at 140 million bushels are “incredibly tight,” when compared with historical data, and could go lower. A three per cent stocks-to-use ratio is perhaps the second tightest on record and is “calling for higher prices in order to ration demand in the market,” said Jubinville.
Looking at the soybean rally over the past months and comparing it with historical data, we’re heading into the territory of the 2012-13 rally, he said. However, to pick a number in terms of a target price in this environment is a “mug’s game,” and will go as high as the market needs in order to curtail demand. “I suspect the demand-pull nature of this bull move still has a way to go yet before it goes through its completion.” The peak of these bull markets is impossible to identify until well after the fact, Jubinville added, and incremental selling into these markets is advised.
“There’s an old trader quote that bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria — and we’ve certainly seen an accelerating curve in terms of grain markets right now.”
Canola market highlights
Trends in vegetable oil markets internationally largely determine canola’s value. When the COVID-19 crisis occurred, crude oil collapsed and took vegetable oil markets down with it at the beginning of 2020, said Jubinville. However, there’s been a steady trend higher as the demand for vegetable oils is strong and continues to be a supportive influence for our canola market.
Canada’s canola production this year came in less than expected at 18.7 million tonnes. And demand remains “incredibly powerful.” On the Canadian canola crush side, in terms of expectation overall for the year, it’s about equal to last year (which was an all-time record) at just under 10,000 tonnes.
Canadian canola exports are a little less than this time last year (and a couple of years previous to that) at around 10 million tonnes. However, this isn’t a reflection of canola demand. Jubinville said he’s not sure we have enough canola to do a bigger export program right now.
At the beginning of January, exports out of the country from the start of the marketing year were about 1.5 million tonnes ahead of last year at the same time. We can’t continue at this pace or we’re going to run out of canola, he said.
Canadian canola ending stocks are going to be down about 1.5 million tonnes, “and that’s starting to get tight.” And there’s no clear evidence yet that higher prices have curtailed demand. “We’ve got to get to that level in order to start conserving supply,” said Jubinville.
Another interesting point he made is typically the premium for canola (due to its value as a healthy oil) over soybeans is around $50 a tonne. Canola relative to soybeans today is at about a $10 premium over soybeans. Relative to other oilseed options, canola is still price competitive (i.e. not expensive and not curbing demand).
“We’re in a race right now to find a price level that can start trimming back demand out of the marketplace before we can potentially run out of canola. Future spreads remain inverted — that’s a bullish signal. Cash basis, generally speaking, across the Prairies is still relatively good, especially if you’re looking into deferred delivery positions. I’m looking for canary in the coal mine issues. Right now, there’s no clear price signal that the canola market is in significant trouble as of yet,” said Jubinville.
“Incrementally selling into rising markets, especially at these profitable prices, is certainly the way to go.”
I look forward to hearing about what’s in store for markets this spring. Join Mike Jubinville and Bruce Burnett on March 11 for this free markets outlook webinar.
In the meantime, stay warm and stay well. Before you know it, spring will be upon us.