Canada Markets

China's recent cancellation of 600,000 mt of soybean purchases from the U.S. sparked a great deal of talk among market watchers. Despite this cancellation, China's recent import data suggests soybean imports to be 16.6% higher in the January through October period of 2012 than in the previous year, for a total of 48.34 mmt. At the same time, a recent article from the CHINADAILY.com.cn website indicates that Chinese processors that rely on imported product will lose money on their crush.

The article goes on to suggest that 90% of processors in China have halted production since the third quarter. Losses are suggested to be 400 yuan per metric tonne, which is the equivalent of $63.46 Canadian.

The Chinese are not the only ones facing this situation. Malaysia, the second largest palm oil producer, is also facing a build-up in domestic stocks to record levels while refiners operate on weak or negative margins. Stocks of crude palm oil are forecast by industry to be at 2.65 to 2.7 mmt at the end of November, which is higher than October's record inventory level of 2.51 mmt.

This buildup in stocks and strained refining margins come at a time when crude palm oil is trading at a $318/mt U.S. discount to soybean oil, when the average discount to soyoil has been more like $100/mt over time.

There's nothing like the knot in your stomach when you cross paths with an older and wiser grain industry player who can't wait to short this market. While I've reported on positive technical moves in the soyoil future as of late, CFTC data as of November 13 shows the non-commercial or Managed Money market participants are net short on soy oil positions, meaning they are looking for downward movement, which works against our canola price.

Given canola's tight fundamentals, it continues to trade at a $62/mt premium to soybeans. The question is can we see more from this market?

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.