Agricultural commodity markets tend to focus on the supply side during the growing and harvest seasons. It is only natural for traders to focus on the weather and production prospects that change week-by-week and day-by-day.
Focus on demand tends to come after harvest when production is more known and the daily weather forecasts are less critical for supplies. And even though we are not past harvest of all crops and production of crops is far from known, we have to be aware of what is going on with demand to see forward trends for pricing based on expected ending stocks.
For wheat, exports are going to be a critical driver. Global stocks are comfortable and have recovered from last year's dip. However, a surprise tender for export by Iran for 3 million metric tons of wheat lent support to the market. Iran has not imported wheat for a couple of years, so the surprise increase in global demand led to higher prices mid-week. This does not change the fact that global supplies are comfortable, but it does show how a shift in export demand can get prices moving.
Looking at vegetable oils, demand is uncertain for both exports and biodiesel. The geopolitical tension between Canada and China has resulted in little trade of canola over the last several months. But this is far from the only political situation impacting oils. Malaysia's president was critical of India's handling of affairs in the Kashmir region, resulting in the Indian government pushing its vegetable oil importers and processors to avoid Malaysian palm oil.
Finally, President Donald Trump continues to try to balance the demands of the farm/biofuel lobby with the oil lobby concerning the 2020 Renewable Fuels Standard and (more specifically) the use of small refinery exemptions. The farmers have issued a petition in the U.S. court of appeals stating that the excessive use of the exemptions has limited demand for agricultural goods and damaged their rural economies. The president has been unable to find a solution that is palatable to both groups, which will be a major focus ahead of the 2020 election.
And looming over all of this is the ongoing trade war between the U.S. and China. Earlier in October when U.S. officials praised the "phase one" deal that would result in $40 billion to $50 billion of agricultural purchases by China, the market found support. But China quickly walked that back and actually began soybean purchases from Brazil, which is seldom done during the U.S. soybean harvest. Are the two sides close to a deal? Or will the uncertainty continue into 2020? This is hanging over the market constantly.
Spring wheat prices were basically flat this week while hard and soft red winter prices were firmer. Spring wheat harvest in the U.S. is 96% complete compared to 100% for the five-year pace. Weather has not been cooperative and does not look to improve next week, so there is a possibility that not all of the crop gets harvested. Winter wheat planting in the U.S. is 77% done, which is just ahead of normal.
The durum market has held at the higher prices. It has been a relief to see the market finally respond to the weather and move upward after holding at the lows for longer than expected.
The canola market continues to move mostly sideways while soybean oil moves to the upside. Look for prices to follow demand into the winter months.
Harvest is basically done, with Saskatchewan and Alberta beyond 96% completion for peas. What is left in the field likely will face both quality and yield reductions on poor weather in the last few weeks.
Mustard seed markets were basically unchanged this week. There has not been much availability of new crop supplies which is limiting market activity. Harvest in Canada is progressing well, with 79% of the harvest of most crops done, though quality is an issue.