ICE weekly outlook: Canola, soybeans – keep an eye on South America

Photo(s): Greg Berg

MarketsFarm – After canola incurred six consecutive sessions of gains in which new contract highs were reached, the Canadian oilseed took a bit of tumble on the Intercontinental Exchange. Such is a sample of the volatility in the market during the holidays.

Keith Ferley, a trader with RBC Dominion Securities in Winnipeg, Man., suggested there will be thin volumes during the three days of trading next week. That in itself could lead to shifts in prices.

It needs to be noted that canola’s tumble was not solely due to the markets winding down for Christmas. Rather, the liquidation of the January contract played its part as it’s soon to expire.

Some overdue profit taking also played a role. At the beginning of December the January canola contract closed at C$583.80 per tonne, with the March contract a short bit behind at C$579.10. By Dec. 22 those contracts climbed their way to C$638.70 and C$628.10 per tonne respectively. Those two contracts then fell to C$623.90 and C$620.80 the following day.

Once the New Year has rolled around, Ferley said the markets’ attention will mostly be focussed on South America, where few issues bode well for North American prices. First will be the weather in Argentina, as continued dryness threatens the country’s soybean and corn crops.

Then it’s the ongoing labour dispute in Argentina, in which grain inspectors and oilseed workers have nearly ground farm exports to a halt. As the strikers press for danger pay in dealing with the COVID-19 pandemic, well over 100 vessels wait to be loaded.

Ferley said the two issues could drive soybean business away from Argentina to the United States.

“The caveat here is Argentina’s weather forecast has got a lot wetter in the next week to 10 days,” he commented, noting that the growers will soon wrap up their soybean planting.

Should there be a good crop in Argentina – with estimates around 50 million tonnes – that could cause a correction in the North American markets. At the Chicago Board of Trade this month soybeans vaulted well passed US$12 per bushel mark, pushing to US$12.60.

While dry conditions have become much less of a concern in Brazil, there remains the issue of no soybeans. So much of Brazil’s crop has been exported, by in large to China, that December exports are on track to plummet to a paltry 120,000 tonnes compared to 2.5 million tonnes in December 2019.

For Brazil to bolster its own domestic needs it’s importing soybeans from the U.S. And the situation might not improve with about two-thirds of its next harvest already sold.

Besides South America, the canola market will be looking at the January supply and demand report from the U.S. Department of Agriculture. Expectations are for the soybean carryout, as well as that for corn, to be reduced providing a another bullish signal.

And when soybeans go up, canola is sure to follow.

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