While the United States-China tariff war has cast a pall over the oilseed market, it looks like we are not facing a bottomless pit in the soybean market.
And the canola market last week was doing better than holding its own, with the November contract showing a modest rally, supported by the falling Canadian dollar.
From the spring high in late May, the November soybean contract fell about 13 percent and threatened to go much lower June 19 but it then firmed and held steady in the following days in the week that ended June 22.
The plunge June 19, which saw soybean futures touch a 10-year low, was sparked by U.S. President Donald Trump threatening to impose a 10 percent tariff on another $200 billion of Chinese goods, on top of the tariffs the U.S. had already levied on $50 billion of China’s exports.
China said it would respond in kind, and the $12.4 billion soy trade would be a key target.
But the price did not continue to fall and hope began to appear that perhaps a price bottom had been set, although there is little hope for a rally as long as the tensions remain high in China-U.S. trade. Also the U.S. soybean crop is in much better condition than it was last year at this point and better than the 10-year average. The U.S. corn crop is also thriving with lots of moisture in most parts of the Midwest.
Meanwhile November canola futures staged a modest rally last week after falling below $505 at one point. Support came as the loonie fell to near US75 cents, down from the 77-78 cent range seen at the beginning of June.
The U.S. Federal Reserve June 13 raised its benchmark interest rate by 25 basis points, while the prospect for the Bank of Canada raising rates this year is fading as the U.S. steel and aluminum tariffs and other trade uncertainty is sapping the strength from the Canadian economy.
Ideas that China will buy more canola to offset the reduction in soybean imports also provided support to canola prices.
It is certainly possible for China to buy more canola, but the key that drives China’s hunger for soybeans is the meal, not the oil. Its huge hog herd consumes the meal and will be looking for alternative feed proteins.
China recently changed regulations to make it easier for it to import canola meal. Also, could more Canadian peas be exported as feed if the price is competitive?
Longer term, this China-U.S. trade dispute could cause Beijing to seek to reduce its reliance on American soybeans and diversify its sources of feed imports.
It is already trying to convince its own farmers to grow more soy. Also, its new policy to greatly increase ethanol production will create new homegrown supplies of dried distillers grain ideal for its feed industry.
The situation could present opportunities for Canadian soybean growers if they can supply the quality and protein levels the Chinese are looking for, although the poor quality of last year’s crop showed that is not a given.
On the other hand, the U.S.-China dispute could also present problems for Canadian growers if cheap American soy that would have gone to China starts flowing north.
China could also look to encourage soybean production in Russia, Kazakstan and Africa to provide an alternative to American beans.
As for canola prices the rest of this summer, the market will as always watch the weather.
Long-term dry conditions in most of western Saskatchewan and southern Alberta had been supporting canola futures, although rain in the last week arrived for some of the areas most in need.
A potential market mover for canola comes June 29 when Statistics Canada issues its seeded acreage survey.
A Reuters poll of the trade pegged expectations at 22.4 million acres compared to the April planting intention’s survey of 21.4 million, which the market mostly discounted, arguing that planting conditions had improved since the survey was done, making it possible to seed more of the oilseed.