South American rain captured market headlines recently, but oilseed futures barely wavered and soon climbed again on signs of tight global supplies.
Geopolitical factors also supported crop markets, with the rising tensions over Russia’s threats to Ukraine keeping traders on alert.
Crop market trading this month has also taken place in the context of what appears to be a stock market correction, with the high-tech Nasdaq Composite already down more than 10 percent from a record high in November. Markets are reacting to expectations that the United States central bank, the Fed, and the Bank of Canada will soon raise interest rates to try to cool inflation.
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Regarding weather, in Argentina the drought capped with a week (Jan. 9 to 14) of sizzling plus-40 C temperatures and then broke with widespread rain on Jan. 15-17. Rain also reached parts of drought ravaged southern Brazil.
The moisture, coupled with forecasts of more rain in Argentina this month, raised hopes that crop decline in that country would halt. But the rain missed desperate areas of southern Brazil, where crops are more advanced and where damage may be irreversible.
After the rain, the impression is that although the deterioration in crops might have halted, South American soybean production will disappoint and could easily be less than last year, which kept futures well supported.
In the days following the rain, markets were also abuzz with talk that China might have bought another large quantity of American soybeans, pushing prices higher.
Soy oil was supported by news that top palm oil exporter Indonesia was planning export restrictions to cool soaring domestic palm cooking oil prices. Malaysian palm oil futures hit a new record high on the news.
While the oilseed complex was well supported, the canola market in recent weeks faced headwinds from a sharply rallying Canadian dollar, which topped US80 cents, and problems in the export pipeline, ranging from the flooding in British Columbia to the bitter cold on the Prairies.
And when crushers slowed buying in the week that began Jan. 13, March canola futures fell sharply below $1,000 per tonne.
But that was likely an over-reaction.
Canadian canola exports and domestic use so far are easily keeping up with expectations for the drought-reduced crop.
As of week 24 of the marketing year, which is 46 percent of the year, canola exports of 3.14 million tonnes stood at 58 percent of what Agriculture Canada forecasts to be the full year total of 5.4 million tonnes.
Domestic use of 4.33 million tonnes was almost 51 percent of the full year forecast of 8.5 million tonnes.
The price dip proved short term and canola futures again rallied above $1,000 with support from the increase in palm and soy oil, and talk that customers of Ukraine canola might turn to Canada to avoid disruptions if Russia invades its neighbour.
The tensions over Ukraine are a wild card in the crop market.
Ukraine is expected to be the world’s fourth-largest corn exporter this year and the fourth-largest wheat exporter.
Russia is expected to be the second-largest wheat exporter after the European Union.
No one knows whether Russia will invade and if it does would it be a modest incursion or a full-scale takeover. Would the fighting interfere with Ukraine’s ability to export grain? Would the fighting last long and if so, would it prevent farmers from tending to crops?
When Russia annexed Crimea in 2014 and assisted partisans to take parts of eastern Ukraine, the fighting was not widespread and after a short period of uncertainty Ukraine’s agriculture sector returned to normal.
Members of the North Atlantic Treating Organization say they will levy heavy financial sanctions on Russia if it invades.
These would likely target Russia’s financial system, including its biggest banks and ability to convert rubles into dollars. There is also talk about barring Russia from the global bank electronic-payment-messaging system known as SWIFT that allows cross-border commerce to proceed quickly and securely.
Such sanctions could inhibit Russia’s ability to trade wheat.
But on the other hand, Europe’s reliance on Russia for a large part of its oil and gas supply could make it difficult for the NATO alliance to agree upon and maintain sanctions.
A Russian invasion would also likely throw oil, gas and fertilizer markets into turmoil.
Benchmark West Texas Intermediate oil is already at a seven-year high as OPEC members seem incapable of raising production to the level they have agreed to and American producers have also been slow to increase investment to raise production.
Production is failing to keep pace with global demand, which looks like it will remain strong because the Omicron COVID wave might be short-lived.
