If rallies need a steady diet of market-supporting news to move higher, then they are chowing down on a buffet table heavy with tasty dishes this fall.
Most weekly export reports in the United States and Canada are meeting or exceeding traders’ expectations and rain forecasts in South America and Russia continue to be less than what is needed to assure good harvests in 2021.
I’ll concentrate on oilseeds in this column but I should note Reuters on Oct. 23 reported China was considering increasing permits to import more corn, raising the likelihood that it will become the world’s largest importer of that grain this year. China’s corn crop was weather damaged and demand is rising from the recovering hog herd.
Already booming sales to China helped Chicago corn futures rally more than 27 percent since the start of August.
Reuters said analysts believe China will import 30 million tonnes of corn in 2020-21, up from seven million the year before.
China has already booked 12 million tonnes from the U.S. and five million from other corn exporters, a lot of it from Ukraine, where local analysts say the corn crop is only about 30 million tonnes, not 36 million, which is the U.S. Department of Agriculture’s estimate.
In soybean and canola futures markets, prices last week broke above resistance at highs set in 2018.
Canola is fighting stalled prices in the soy oil market, but canola seed remains well supported by a tight supply and demand situation and strong export pace.
Provincial agriculture departments updated their yield forecasts and they remain below the Statistics Canada forecast released in early September. The provincial numbers imply a crop more than a million tonnes less than the federal agency’s forecast of 19.48 million.
Saskatchewan Agriculture now estimates average yield at 37 bushel an acre, up from its September estimate of 35 bu. but still less than Statistics Canada’s 39.6 bu.
Alberta Agriculture has pegged the average yield at 40.3 bu. per acre, down from 41.4 bu. earlier this fall and well down from the Statistics Canada forecast of 45.4 bu.
Manitoba does not issue yield forecasts.
If we use the Saskatchewan and Alberta yield forecasts to tally total production, we get a canola crop of 17.9 million tonnes. That is 1.56 million tonnes less than the federal outlook.
Statistics Canada issues its final production estimate on Dec. 3.
So supply appears to be tightening and also demand is running hotter than expected.
Canola exports boomed through the first 11 weeks of the crop year, at 2.53 million tonnes, 800,000 tonnes or 46 percent ahead of last year at the same point, according to Canadian Grain Commission figures.
Domestic disappearance is running only a little behind last year’s pace at 2.17 million tonnes, down from 2.26 million, according to CGC.
Agriculture Canada’s supply and demand forecast, which used the larger Statistics Canada production estimate, envisions a 2020-21 carry-out of 2.2 million tonnes, the smallest since 2016-17’s 1.34 million tonnes.
But given that the crop is likely smaller than the current official forecast and the strong pace of exports, the final carry-out could be very tight indeed.
Canola is supported by U.S. soybean prices that are also rallying on a smaller than expected U.S. crop and strong exports, with China the dominant buyer.
The question is whether China will keep up the pace. The China-U.S. trade war disrupted normal trade in the last two years but traditionally China is a heavy buyer of American soybeans into December and then starts to shift to South American crop once their harvest begins in January.
But questions hang over South American crops because of dry weather.
Seeding in Brazil is well behind the normal pace because farmers delayed, hoping for rain to arrive. That means harvest will be pushed back into February. And if rain is short in December the pods won’t fill, meaning yields will fall.
Already Brazil’s domestic supplies of old crop corn and soybeans are so tight and prices are so high that the government eliminated its import tariff on those crops, raising the potential for imports of American soy and corn.
It is also dry in much of Argentina, where seeding is also behind. The dryness has already savaged the wheat crop. That harvest has just begun and the Buenos Aries Grain Exchange last week dropped its wheat forecast to 16.8 million tonnes, down from 17.5 million last month. That is well below the USDA’s forecast of 19 million tonnes.
It also remained dry in Russia. Farmers nevertheless are pushing ahead with winter wheat seeding and acreage might reach a record high. The plants that have sprouted are stressed from the dry soil and no rain was expected this week, although long range forecast showed an improved outlook for rain in early November.
In the U.S. winter wheat belt, rain that is in the forecast this week is expected to quell worries about dry soils.