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Blowback from Chinese CEO’s arrest may drag on markets

New data from StatsCan might (or might not) support canola

Canola crush margins have improved in the past few months thanks to a low Canadian dollar.

ICE Futures canola contracts moved higher during the week ended Dec. 7, although whether that trend continues is questionable.

A rally in Chicago Board of Trade soybeans Monday morning (Dec. 3) provided the initial spark for a move higher in canola, as participants reacted to news of a tentative trade truce between the U.S. and China. The two countries reportedly agreed to stop increasing tariffs for a period of 90 days while negotiating a longer-lasting agreement. China agreed to purchase more U.S. agricultural products, which would include soybeans.

However, aside from optimistic tweets from U.S. President Donald Trump, no actual concrete trade developments materialized. The arrest of a high-ranking official with China’s Huawei Technologies, by Canadian authorities at the request of the U.S., threw another wrench into the trade relationship.

With Canada now in the middle of the U.S./China dispute, the possibility of Chinese retaliation could be another wild-card factor to keep an eye on in the background.

Statistics Canada released its final survey-based production report of the year on Dec. 6, pegging the canola crop at 20.3 million tonnes, down from the September model-based estimate of 21 million and the year-ago level of 21.3 million, but above the August forecast. Production down by a million tonnes on the year could provide some underlying support, but carry-out was large and end-user demand remains steady at best.

The latest Canadian Grain Commission data showed exports running slightly behind the year-ago pace, while demand from the domestic crush sector was holding steady. Canola crush margins have shown some improvement over the past few months, with weakness in the Canadian dollar behind some of that strength.

In the U.S., soybeans and corn gapped higher to start the week on the Chinese trade news. Cooler heads prevailed after the initial bounce, and both markets spent the remainder of the week consolidating in choppy trade.

While any concrete developments on the trade front would support soybeans and corn, the missed business is unlikely to be made up while buyers will soon have new-crop South American supplies to purchase.

Private forecasts out of Brazil point to very large soybean and corn crops in the South American country, with early harvest activity set to start up within the next month.

U.S. wheat futures moved higher during the week, with much of the strength stemming from improving export demand. U.S. prices are finally looking more competitive on the global market and U.S. traders were able to secure some more business. However, Russia has not yet slowed down its export pace, which limits the potential for U.S. sales into some markets.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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