Soybean demand climbsTwo weeks ago, we thought soybeans were in a bear market. Chicago Board of Trade futures had fallen from $14 in mid-September to $12.55 in early November, but the recent U.S. Department of Agriculture report showed current stocks are not, in fact, all that onerous.
By: John Duvenaud, Agweek
WINNIPEG, Manitoba — Two weeks ago, we thought soybeans were in a bear market. Chicago Board of Trade futures had fallen from $14 in mid-September to $12.55 in early November, but the recent U.S. Department of Agriculture report showed current stocks are not, in fact, all that onerous. The carryover next summer will be bigger than it was last August, but demand keeps climbing, especially from China, and the American carryover will still be on the small side.
The issue with the soybean market is that Chicago futures are inverted right through to January 2015 — well over a year. Spot November is $13.75; Nov. 14 is $11.75. The market is assuming, probably correctly, that South America will produce a bin-buster soybean crop this winter and that supplies will be ample for some time.
Western Canada had its biggest soybean crop ever this year, which has become more or less the norm. The trade is doing a good job of moving soybeans. Elevators were able to dedicate several facilities exclusively to soybean movement in September and a good portion of the Manitoba crop moved before the American harvest hit its stride. Pioneer at Mollard is paying $12 per bushel for spot soybeans and $12.17 for January shipment. The premium in January is because of rail logistics, not futures prices. Delmar is at $12.25 per bushel for spot delivery.
Mustard market contracting
Mustard has always been a minor crop in western Canada. It has had a hard time competing against canola and several other crops.
Mustard yields simply cannot compete and farmers are gradually cutting plantings. We’re down to about 60 percent of historical planted acres.
Markets are quiet. Most processors are still taking contracted mustard so there isn’t a lot of room. Spot prices are 38 cents on yellow, 35 to 36 cents on brown and 28 on Oriental. Mustard is one of the few crops that has stable prices compared with last year. They’re a bit off their highs, but haven’t fallen nearly as much as canola and wheat.
There are few, if any contracts available for 2014 mustard.
Prices have improved a lot in the past couple of years. Brown prices were 16 cents for a long time then increased to 35 cents. Most of the brown that had been sitting in long-term storage has come to town. This using-up of stored stocks by the largest mustard exporter in the world has to be positive for prices.
Expect flat markets at least until Christmas. Overseas buyers are currently bidding at the equivalent of 35 cents freight-on-board farm on yellow.
Brown might see more strength as the Eastern European crop was not spectacular. Oriental demand seems to be in a long-term decline.
USDA report supports canola
The USDA report was supportive for the oilseed complex. U.S. soybean yields and production were increased as expected, but stronger soybean demand resulted in a very marginal increase in the ending stocks. The overall conclusion is that U.S. soybeans will be historically tight for 2013 and 2014 and the market is counting on a record South American crop. South American growing conditions are near perfect so far, but the canola and soybean markets will be extremely sensitive if any type of adverse conditions materialize. Expect the oilseed complex to incorporate a production risk premium at some point during the growing season. The soybean market needs this large South American crop, given the tight U.S. stocks.
Canola stocks will remain burdensome throughout the crop year and the soybean market needs to trade at a premium to canola given the tighter soybean fundamentals.
If we see a significant rally in the bean complex, canola will also be pulled higher.
Looking forward, we expect significant pressure on the oilseed complex when the South American harvest comes off in March and April. Next spring, anticipate increased acreage in both U.S. soybeans and Canadian canola.
Cash barley has been trading in the range of $180 per metric ton to $185 per metric ton delivered to Lethbridge, Alberta, area feedlots. U.S. corn is offered into Southern Alberta at $205 per metric ton. The feed grains complex has been factoring in a record corn crop and harvest is now in the final stages. In past years, the corn market tends to experience a small rally after harvest and this rally takes about one month from the recent lows to the highs. Cattle on feed numbers in Alberta and Saskatchewan will reach a seasonal high in mid-December, which will be the highest domestic demand period for the winter.
Export barley prices remain under pressure because of favorable growing conditions in Australia and Argentina and continued aggressive selling from France and the Black Sea region. But the export pace from Europe, Ukraine and Russia will slow in the latter half of the crop year. We are starting to see higher domestic prices in these regions, which will limit export capacity later on. South American corn conditions remain favorable, but a smaller crop is expected because of a year-over-year decline in seeded area.
Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, either call 1-800-567-5671, e-mail email@example.com or visit canadagrain.com.