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Buyers are canola!

Artificial intelligence can’t quite cut it yet in market commentary as we see in our 2017 review

Futures from activity
Picks back up the extent of their sideways
Canada released its softest levels
During the yield potential
Buyers are canola
However, at two weeks remains within a year average
Soybeans could easily continue to be harvested

In an attempt to outsource the year-end commentary and put it on auto steer, the above ‘poem’ was created by inputting 12 months’ worth of analysis into an algorithm that worked its own brand of magic. It’s safe to say that artificial intelligence has a ways to go.

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However, while this marketing koan may not provide the clearest picture of the year that just passed, the algorithm is right about soybeans and there may be some more truth to be found in the apparent randomness.

Canola had its ups and downs over the course of 2017, but when pulling back to look at the bigger picture the activity may best be described as ‘sideways.’

Canola prices are exiting 2017 at about $20 off of where they started, with the front-month January contract trading at about $490 per tonne on December 21. However, the trend line over the course of the year looks fairly flat, with canola generally holding within a $50 range of $475 to $525 per tonne. Breaking out of that range in 2018 is always possible, but a catalyst will be needed.

At the end of 2017, canola was trending lower and looking like a break to the downside of that sideways range had more potential than a break higher in 2018.

While there will always be debate with any number Statistics Canada comes up with, the fact that the government agency pegged this year’s canola crop at a record 21.3 million tonnes provides little to get excited about. There were definitely drought-stricken areas of the Prairies that will remain a concern in 2018 without some precipitation over the next few months. However, the moisture was apparently enough to make a crop in 2017, and the official numbers are a pretty big weight on the market.

Canola ending stocks are no longer forecast to be tight by July 2018, which will likely have end-users unlikely to bid up the market – at least until the spring when they may or may not be looking to buy acres. Exports and the domestic crush should both remain strong, but the supplies are there to meet that demand for now.

In the U.S., soybeans and corn both kept within rather broad, but ultimately sideways, trading ranges in 2017, with attention at the turn of the calendar firmly on South American crops and Chinese demand.

The only real excitement in the U.S. grain markets was found in Minneapolis spring wheat. The futures rallied to their highest levels in four years during the summer, as drought conditions across North Dakota, Montana, and Saskatchewan cut seriously into production. Cooler heads eventually prevailed, but spring wheat is still the only one of the major North American futures markets exiting 2017 at a higher level than it entered.

Beyond the typical supply/demand fundamentals that swayed the market, 2017 also had its fair share of outside influences. Chief among them was the volatile political situation in the United States. From the Canadian perspective, the possible end of the North American Free Trade Agreement (NAFTA) and adjustments to U.S. renewable fuels policy could both be something to watch in the new year. Resulting swings in the loonie will be another factor to watch.

Computer algorithms are hard at work predicting the weather, analyzing technical charts, estimating crop yields, producing bitcoins, and many other things. However, despite all of the advances in technology, taking all of that information and making sense of it remains a human endeavour much like growing the crops themselves.

All the best in the new year, and remember…

Any poke above the point on record
However the psychological point
With yield provide signals
As prices one way
Futures
Which would move

About the author

Columnist

Phil Franz-Warkentin - MarketsFarm

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

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