EPA's 2018 mandate uncertainty

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One bright spot for commodities markets over the last few months has been vegetable oils. In a landscape of generally well-supplied markets, prices have been weak (save spring wheat's support due to hot and dry weather).

Vegetable oils have been firm for a few reasons. First, soybean meal demand has not been very strong, leading to weaker crush demand and therefore lower soybean oil output. Palm oil stocks have been lower as Malaysian production has not hit expectations. And canola output was smaller than initially expected due to the weather stress. All of these factors had the market supported until a few weeks ago.

What has changed? Stocks in Malaysia are recovering and crop estimates for canola have improved, but the most recent pressure comes from the U.S. Environmental Protection Agency. The EPA is taking comments on adjusting blending requirements for biodiesel which could potentially lower the mandates altogether or allow other biofuels (such as ethanol) to meet advanced mandate requirements.

Recall in the last U.S. Department of Agriculture World Agricultural Supply and Demand Report that biodiesel demand for soybean oil was increased a remarkable 550 million pounds from the August estimate. This jump in the WASDE was very supportive, but this potential change to the mandate for 2018 has put question around future demand, leading to price weakness.

Wheat

The wheat market has been very quiet, lacking any major volatility for weeks. Prices have been slowly creeping higher, but not due to any significant change in supply or demand. Buyers are simply stepping in to capture low prices, giving some support. In the U.S., winter wheat planting continues to move along, with the Department of Agriculture reporting 24 percent completion compared to 28 percent for the five-year average. Some rains in the coming week may slow progress a bit, but moisture will be helpful for early development and emergence.

Durum

Following general weakness from the broader wheat markets, durum prices stepped lower. Harvest activity is done in the U.S. and nearing completion in Canada. The crop is definitely smaller, given the heat and dryness throughout the Plains this summer. But, overall supplies are not so tight that the market cannot ease a bit following harvest.

Canola

As previously mentioned, fats markets have been on the defensive for the last week, but canola has been able to largely resist the pull lower. Demand for seed and product remains very strong and supplies are tight as newly harvested product has not fully hit the market.

Questions remain about the actual size of the crop, but these will soon be answered as harvest is well under way. Saskatchewan reported that 68 percent of the crop has been harvested and Manitoba is likely a bit ahead. Alberta has been slowed by rains (with more expected in the near term) and only 45 percent is complete.

Peas & Lentils

Saskatchewan's pea and lentil harvest is basically complete, but cooler and wetter weather is making the final effort difficult for farmers. In some areas, rains are welcomed while central and northern parts of the province need dry and warm conditions to finish out harvest. Moisture reserves are improving after the dry summer, but more is needed in the long term.

Mustard

The Canadian Grains Commission has reported 300 metric tons of mustard seed as cleared through reporting terminals. Total exports to date for the 2017-18 crop year are at 2,500 metric tons compared to 2,000 metric tons last year at this date.