Despite the international events that have battered markets, which includes the effects from the coronavirus pandemic combined with the global trade war in crude oil, there are signals that bears watching this week. In the agriculture industry, we know people still have to eat, and look to the market to produce favorable signals.
Bullish factors seen in this week's markets are continued dry conditions seen stretching from southern Brazil through Argentina, with one DTN report pointing to close to 5 million metric tons being reduced in soybean production potential for the two countries, as estimated by South American agencies. At the same time, Argentina's moves to curb the coronavirus spread has led to a significant slowing in throughput at port terminals. Late today, Brazil closed its borders, leaving that country's export potential in question.
These concerns, along with Canadian dollar weakness and strength in futures has not been overlooked in Canada's cash market. Wednesday's DTN cash market reports for Ontario shows bids rising, ranging from as low as $11.36 for elevator delivery to $12.16 delivered to a port terminal. A random chart for cash soybeans attached for one elevator shows a bid of $11.76/bu. on Wednesday, while approaching the 2020 high of $11.78/bu. reached on Jan. 9. Thursday's strength in futures, with the May contract closing up 17 3/4 cents, will likely see this particular bid reach its highest level since June 2018.
This move is not only due to a move higher in futures, but is accompanied by stronger basis, both in U.S. dollar terms and in Canadian dollar terms. The brown line on the middle study shows the elevator basis, or the difference in the future's close and the street price, which ignores the effects of currencies. Since Friday, this basis has strengthened from $2.93/bushel over the May contract to $3.50/bu. over the May contract.
At the same time, the lower-study shows this basis in Canadian dollar terms, with this basis moving from $0.40/bu. CAD under on Friday to $0.25/bushel under on Wednesday of this week.
Canadian dollar weakness has also been a supportive feature this week; should demand resurface, buyers may be forced to react quickly to source supplies. The Canadian Grain Commission's data shows Canada's exports down close to 1 mmt year-over-year as of January.
Week 31 data shows Canada's commercial stocks of soybeans at 181,900 mt, which is down from the 355,700 mt reported for the same week in 2018-19. Of this volume, only 28,300 mt are in position in St. Lawrence ports, while this time last year there was 200,100 mt in these same facilities.
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Cliff Jamieson can be reached at email@example.com
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