MarketsFarm – The column in this space a year ago led with the line ‘the more things change, the more they stay the same.’ That line was a jumping off point for a decade-in-review piece pointing out some of the through lines of the grain markets during the previous ten years. Well, the pandemic hit in March and just about everything changed in some way or another in 2020.
In many ways 2020 was a year that felt like it lasted a decade. A decade in which everything changed all at once, and then entered its own odd stasis.
The agricultural futures markets had their own share of twists and turns over the course of the year, but generally showed resilience and strength. ‘People still need to eat,’ was a popular mantra.
Looking at the canola futures in particular, prices hit their lows of 2020 in mid-March right when lockdown measures were first being implemented and the unprecedented nature of COVID-19 put markets around the world on edge. The futures then entered a four month period of directionless trade before something clicked in July. Aside from a few sporadic profit-taking corrections, the trend has pointed higher ever since with front-month canola contracts gaining about C$150 per tonne over the past five months.
Prices were hitting session highs above C$640 per tonne just ahead of Christmas, with C$650 the next likely technical target. Canola last traded at that level in 2013, and many analysts think the strength will last at least until the 2021/22 crop gets closer to reality.
Chart-based speculative buying has played a part in the canola uptrend, but the underlying strength comes from supportive fundamentals. Demand for canola is just so strong that it will need to be rationed in order to keep ending stocks from getting too tight.
Soybean and corn futures at the Chicago Board of Trade showed a similar pattern of stasis in the first months of the pandemic followed by a steady uptrend over the fall and into the winter.
Attention in those row crops at the start of the New Year is focused squarely on South American weather conditions. It’s the height of the growing season in Brazil and Argentina, with many crops seeded into dry fields. Moisture conditions have shown some improvement, but the risk of yield losses should keep a weather premium in the market ahead of the North American growing season.
The activity in wheat over 2020 was much more choppy, Chicago soft wheat closed out the year relatively strong, as the rising-tide influence of soybeans and corn contributed to strength from export restrictions being imposed in Russia. However, the spring wheat traded in Minneapolis lagged to the upside, as U.S. traders factored in a big Canadian crop and expectations for improved production out of Australia.
Looking ahead, 2021 is bound to be filled with its own ups and downs in the futures markets. A change from much of the pandemic-related upheaval that 2020 brought would be more than welcome, but more of the same strength that the markets saw over the past quarter wouldn’t hurt either.