Alex Norton / Beeson Inc.
A confluence of forces is taking vegetable oil markets lower. Soybean oil and palm oil prices (among others) have been on the defensive for the last few weeks. In fact, prices for the July soybean oil futures contract have hit their lowest point since the summer of 2016.
Last week's U.S. jobs report showed steady unemployment at 4.1 percent and a better-than-expected 200,000 jobs added while wages have increased. The stock market has been rising steadily for over a year, so all is good ... right?
This week was a clear economic lesson for those who wanted to understand the impact of currency values, as a weaker U.S. dollar led to a spike in agricultural commodity prices. What happened?
On Jan. 12, the U. S. Department of Agriculture put out several reports on stocks, production, demand and acreage of major crops. These reports are a turning point, taking the market from old crop to new, shifting focus to the future. The report progression goes from official, fall-harvested crop production wrapping up the 2017 growing season, to quarterly grain stocks providing a snapshot of supplies on-hand, to winter wheat planted area and updated supply and demand forecasts which look to the coming crop year.
The U.S. Department of Agriculture is set to release some key reports this week. Not only is the monthly World Agricultural Supply and Demand Estimates report coming out, but planted area for winter wheat and canola for 2018, quarterly grain stocks of major grains and production statistics for crops harvested in the fall of 2017 will all be reported. Each of these reports has the potential to be a major price driver, and pre-report forecasts will set expectations and determine market reaction.
As 2017 comes to close, it is a good idea to take a look back. Reflecting on what drove prices during the last 12 months and the recalling the primary fundamental factors can provide perspective as the New Year begins.
With traders heading into holiday-mode, agricultural commodity markets are calm, but not especially bright. Many markets are resting at very low levels. Export markets are generally tough, too. India is not taking as many pulses or edible oils, and there is so much wheat in the world that competition among major suppliers is keeping prices low.
Last week, Statistics Canada took its turn to drive markets. As a refresher, the production and stocks report from the Canadian government surprised everyone with bearish data for almost all commodity categories. As harvest is now complete, it turns out that the summer drought did not take supplies down as much as initially feared.
This week's report from Statistics Canada held the first, post-harvest estimates about the crops produced in 2017. All previous were based on expectations and took weather into account, but final output is not known until the crops are actually harvested.
It is no secret that agriculture markets have largely been down in recent years. Even the last few months have seen prices fall unexpectedly low given reduced acreage for many crops from the 2016 season. While this is not a therapy column by any stretch, try to take some encouragement from longer-term drivers.