Concerns of a hot, dry weather pattern in Brazil, and optimism surrounding the potential for continued soybean sales by the U.S. to China, are supportive features in the oilseed markets, although the move in soybeans on Wednesday was slow to inspire canola traders.
Supportive commercial buying interest was seen in both markets in Wednesday's session, which saw March soybeans up 12 cents and March canola up $4.60 per metric ton, with the March/May spreads seen narrowing for both markets. The March/May canola spread narrowed $.20/mt this session to minus $8.30/metric ton, (May trading over the March), the narrowest spread seen in four sessions, after bouncing from a Dec. 28 spread of minus $8.60/mt, the weakest spread seen in one month. This still reflects close to 72% of full carry, viewed as a bearish signal with 67% being the cut-off between what is viewed as neutral and what is viewed as bearish in DTN analysis.
The blue line on the attached chart shows the continuous active canola/soybean spread, measured in Canadian dollars/mt. After reaching a weekly high of $96.46/mt in September (canola trading over soybeans), the widest spread seen since May 2013, soybeans have gained relative to canola and this spread has recently shown signs of stabilizing in the mid-$30/mt range. After months of industry concern that canola prices remained too high relative to soybeans and viewed as negative factors affecting demand, canola should be viewed as a much more affordable option.
ICE Canada reported Vancouver cash canola to strengthen $8/mt on Wednesday to $30 over the March contract on Jan. 2. This is $4/mt stronger than Jan. 2 2017 while the strongest cash trade reported on this date in four years. While this bears watching, the Canadian Canola Board Margin Index is also closing the gap between current levels and that reported for the same date one year ago, reported at $65.63/mt on Dec. 31, down from $80.08/mt shown one year ago.
Combine this with Wednesday's ICE Canada comments that points to producers being "cash adequate probably right into the middle of February" and expected to be reluctant sellers, cash markets have likely seen their lows as we move into canola's period of seasonal strength.
Cliff Jamieson can be reached at email@example.com
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