WESTERN PRODUCER — Canola futures prices, both old crop and new crop, have fallen below $600 per tonne for the first time since December 2020.
Corn and soybean futures last week were also the lowest since December 2020.
Soy oil and Minneapolis spring wheat were the lowest since spring 2021.
Will this price erosion stop?
Crop traders appear comfortable with the current level of stocks, and there is no weather threat or political issue that has them panicked.
That is not to say such threats won’t emerge in the coming months, such as the potential for a hot, dry summer in the United States.
But for now, the trade seems content, and that leads to lower prices.
Last October, I wrote the following:
“The question is, can prices hold here near the bottom of the elevated 2021-23 trading range or will they drop down to the lower range that was common in the 2015-20 period?
“For oilseeds, including canola, much will depend on South America’s crops now being seeded.”
At the time, there was concern about El Nino and dry weather in central Brazil.
It was a challenging soy growing season for many Brazilian farmers, and production was less than hoped for at seeding.
However, the crop was not a disaster.
Brazil’s official forecaster, Conab, this month dropped its crop estimate to 149.4 million tonnes. The U.S. Department of Agriculture forecast for Brazil has also been falling but is still more optimistic at 156 million tonnes.
The market does not seem to be overly concerned about the difference between the two forecasts.
With the dry weather, Brazil’s soy harvest is advancing quickly.
Last week 26 percent had been harvested, ahead of the average pace of 19 percent. Brazil new crop soybeans are hitting the global marketplace and putting pressure on American soybeans.
And the strong U.S. dollar is putting American crop exports at a disadvantage. If American crop exports lag, that puts downward pressure on U.S. crop futures markets.
Argentina’s soy crop saw a hot, dry spell but that was temporary, and its soy forecasts remain above 50 million tonnes.
There were also concerns last fall that the building El Nino would bring dry weather to palm plantations in Indonesia and Malaysia.
Dryness in parts of Indonesia have hurt rice production, but rainfall has been close to normal in areas where palm plantations are the main crop.
Palm oil normally is cheaper than competing oils, but because soy oil prices have declined so much in recent months, soy oil is now a little cheaper than palm.
Generally, I don’t see much in the palm oil sector that would help lift the wider oilseed market quickly.
Staying with oilseeds, the Canadian canola market is struggling with slow exports.
We recently passed the half way mark in the crop year, and in a good year we’d be half way toward reaching the full year target for exports.
But at the end of week 26 of the crop year, canola exports stood at 2.78 million tonnes, according to the Canadian Grain Commission. Agriculture Canada’s forecast for exports is 7.7 million tonnes and half of that is 3.85 million, so we are more than a million tonnes behind the pace needed.
Exports will have to pick up a lot in the second half. Shipments to Mexico, Pakistan and Europe are well behind the levels of last year at this point.
Domestic use stood at 5.37 million tonnes, a little more than 50 percent of the full year target of 10.5 million tonnes, so we are on track to reach or slightly exceed that milepost. However, without an increase in exports, there is a danger that the carryout could be raised significantly.
Turning to wheat, there is lots of competition in the market. Ukraine’s exporters have been able to overcome the hurdles Russia’s aggression has put on them.
European and Russian wheat are in strong competition in the markets they serve.
The winter wheat crops in the Northern Hemisphere now in dormancy are generally in good shape. The U.S. hard red winter wheat area has had much better moisture than in recent years.
While large parts of the Canadian Prairies would like to see more moisture, much of the American Midwest and Plains have enjoyed normal to abundant moisture this winter.
Looking into spring, climate models I have seen don’t raise warning flags about precipitation, but they do point to a continued warmer-than-average temperature that could increase evaporation.
The big wild card is summer growing weather as we transition from El Nino perhaps to La Nina.
It is a long way away yet, but the models for July show an increased chance for severe heat and dryness across much of the U.S.
