Escalating trade tensions between the United States and China were shaken off in the canola trade on Wednesday, with some early signs this tension may be positive for canola, overall. After reaching a session low of $521.30/metric ton, down 1% or $5.20/mt from Tuesday's close, canola recovered to finish higher, up $1.90/mt to $528.40/mt. Price continues to inch towards the March high for the May contract at $531/mt. This move is shown by the black bars on the attached chart and is the fourth consecutive higher close.
The red bars represent a sharp drop in soybean prices this week, measured in Canadian dollars/mt, with Wednesday's close resulting from a sharp move lower of $12.10/mt. As seen in the lower study, the canola/soybean spread has strengthened $24.50/mt this week to roughly $52/mt (canola trading over soybeans), which is the widest spread seen since mid-January.
This early reaction could suggest that should China move forward with plans to tariff U.S. soybeans, the result could be favorable for Canadian canola. The Dow Jones ICE Canada Review reports that the Vancouver cash basis has strengthened $22/mt or 58% to $60/mt over the May this session, although ICE Canada continues to report this cash trade at $38/mt over.
The response from the Canadian soybean industry is not as clear as the trade tries to sort out the likely results from proposed actions. Soy Canada Executive Director Ron Davidson told Business News Network (BNN.ca) that the U.S. could ultimately sell more soybeans in Canada and other markets that we trade into. "The price and volume of Canadian exports to China may increase a bit, but the price could fall in the domestic market and other markets," he said, forcing Canadian traders to "defend" sales into 69 other countries. The range of Ontario cash basis levels was reported at $2.07 to $2.60/bushel over the May futures, down 13 cents to down 10 cents from last week's close.
While the Canadian government was quick to announce that Chinese steel imports will not access the U.S. market via Canada, it will be interesting to see if the northern flow of soybeans will be prohibited from being exported to China.
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