So much for the myth of rock-solid vegetable oil demand turning canola and soybeans into the big price queens of late 2012.
The two crops have given back all the gains they won in this year’s rally sparked by the U.S. Midwest drought. January canola futures are struggling to stay above $13 per bushel and soybean futures have fallen to less than $14 per bu.
At the same time, spring wheat futures are still 15 percent above where they were before the drought and corn is 40 percent higher.
It’s a sad situation for farmers who hung onto their oilseeds, expecting that tight stocks and strong demand would lift values higher.
“I’m a little surprised that we’ve been able to push below $14 here,” said analyst Rich Nelson of Allendale, Inc. of McHenry, Illinois.
“In the big picture, the prospect of demand staying this strong was maybe a little too optimistic.”
North America’s oilseed markets were rocked by news last week that 10 export shipments of U.S. soybeans had been cancelled. That destroyed the assumption of many analysts, traders and farmers that while crop buyers could cut back on cereal grains, they would not reduce oilseed purchases regardless of the high prices.
The remaining bullish wind whistled out of the oilseed markets and made it appear on the charts as if the Midwest drought had never occurred.
Analyst Greg Kostal of Kostal Ag Consulting in Winnipeg said this is a story of North American oilseeds being way out of whack with the world market.
“We’re reminded once again that canola is simply another oilseed-consuming choice,” said Kostal.
Palm oil has been trading at a $250 to $300 per tonne discount to canola oil and soybean oil, and that can’t go on forever.
“That has some incremental demand-changing behavior down the road,” said Kostal.
Canadian export sales statistics aren’t as available or current as U.S. soybean numbers, but Kostal said he’s hearing that weakness is also appearing in overseas canola de-mand.
“The initiation of new export business has significantly slowed down,” said Kostal.
“We’re just executing old business and the bulk of (present canola sales) is in the domestic crush.”
News of improving growing conditions in South America are allowing anxious importers to back away from the U.S. market when planning late winter buying, with China expected to switch to cheaper South American soybeans when they become available.
Kostal said the incoming Australian canola crop will probably pick up the remaining demand from Dubai and Pakistan that Canadian canola exporters had hoped to capture.
Nelson said he believes soybean and corn prices have hit near-term bottoms that will hold until January, when the U.S. Department of Agriculture releases a much-watched summary report.
Soybeans might not be hurt by the report, but Nelson expects corn and cereals to fall once the slump in demand that is now being seen commercially is reflected in official statistics.
“We tend to think we have a short-term bottom for the next month, month and a half, but we certainly feel there is still further (for corn) to go (down) once the USDA January report is out of the way,” he said.