Ontario Cash Soybeans Soar Higher
Sir John Templeton, famous investor and mutual fund developer, once stated "The four most dangerous words in investing are: This time it's different."
Looking at recent moves in the oilseed markets, bullish forecasts coming out of South America and ongoing demand from China, it is easy to think that it may be different this time, although markets can't trend forever.
The black line on the attached chart shows the weekly trend for Ontario cash soybeans, when compared to the 2019 weekly trend (grey line) and the 10-year average (brown line). This weekly price was shown at a recent low in week 33 or in mid-August at $11.33/bushel (bu), a time when a $12 strike price was high on the wish-list.
The latest data from the province's ag ministry is for week 45, or the week ending Nov. 6 showing an average price of $13.74/bu, while the trend has been extended using ProphetX cash data for an average price of $14.38/bu for week 46 or the week ending Nov. 13.
The move isn't over, with crusher/port prices reported at levels ranging from $15 to $15.33/bu on Nov. 17. Weekly data reported by the government shows that a $15 cash price hasn't been seen since the middle of 2014, while reaching a weekly high of $16.43/bu earlier in that year.
It is interesting to note that the 10-year trend on the attached chart shows prices trending higher through the balance of the calendar year, but also tend to climb during the first half of the year, having reached a high on week 29 during the past 10 years.
Canadian movement remains brisk. The Canadian Grain Commission reports 824,500 metric tons exported in the three weeks from week 12-14, the fastest pace of movement in almost two years, or since week 17-19 of the 2018-19 crop year. Commercial stocks of 949,900 mt are almost exactly 100,000 mt higher than the five-year average for this week. This should signal favorable movement to follow.
It is interesting to note that estimated crop year supplies for 2020-21 are pegged at 7.346 mmt for 2020-21, which would be the second-lowest in five years and down 571,820 mt from the previous five-year average. As of the CGC's week 14 data, exports plus the volume held in commercial storage total 28.7% of total estimated supplies, the highest percentage calculated for this week in four years.
One signal that bears watching is the futures spreads. As of Oct. 5, the Jan/July spread was at a bullish 17 1/2 cent inverse (January trading over the July contract). On Nov. 16, this spread closed at even money, or the January contract closed equal to the March close. While this is still viewed as bullish overall, this trend turned on Nov. 17 and the close reflected a 1 1/4-cent inverse, or increasingly bullish. Each successive contract from the January contract through to the July contract is now inverted over the successive contract.
Also supporting the move in cash prices is strengthening basis in Canadian dollar terms. The government's data shows this basis strengthening for four consecutive weeks to $0.34/bu under the January contract as of week 45 or the week-ending Nov. 6 or week 45. This data shows basis trending in a direction that is counter to the 10-year average, which also bears watching. The most recent $0.34 compares to the five-year average for this week at $0.49/bu and the 10-year average of $0.68/bu.
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Cliff Jamieson can be reached at email@example.com
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