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StatsCan report tells tale of poor harvest conditions

Fundamentals could soon favour canola values

ICE Futures canola contracts started the first week of December by falling to their lowest levels in three months, as losses in outside vegetable oil markets spilled over to weigh on values. However, values recovered off of those lows by the end of the week, with the impact of the poor harvest finally showing up in some official numbers.

Statistics Canada on Dec. 6 pegged the country’s 2019 canola crop at only 18.65 million tonnes, which would be well below the 20.34 million tonnes grown the previous year and at the lower end of trade expectations.

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While the cold and wet harvest did have some industry participants anticipating a downward revision from the 19.36 million forecast in September, many remain of the opinion that actual production was still closer to 20 million.

If the crop actually is down eight per cent on the year, the supply/demand fundamentals could start to look more constructive from a price standpoint going forward. However, supplies are more than sufficient to meet the demand for now, while questions over how much of the unharvested crop will come off in the spring will linger for some time.

Farmer deliveries into the commercial pipeline are running ahead of the year-ago pace, with the poor harvest likely playing a part in that active delivery pace as producers don’t want to be sitting on tough canola over the winter.

On the demand front, exports are lagging the year-ago pace, but wide margins are keeping domestic processors crushing at a solid pace.

Lingering effects of the week-long Canadian National Railway (CN Rail) strike are still being felt, with officials at the company expecting it will take some time yet to catch up completely.

In the United States, on-again/off-again trade talks with China kept traders on edge. Fresh U.S. tariffs on Chinese imports are set to go into effect on Dec. 15, but there was optimism during the week that a tentative Phase 1 deal could be reached before then. Whether or not that optimism proves warranted remains to be seen.

Soybeans bounced off of three-month lows during the week, with trade optimism and gains in Malaysian palm oil behind the buying interest. Palm oil has climbed steadily higher for the past five months, hitting its strongest levels in years as supplies of the tropical vegetable oil tighten.

Corn futures held rangebound during the week, while activity in wheat markets was choppy. Chicago and Kansas City winter wheat contracts drifted lower during the week, while Minneapolis spring wheat attempted to stabilize above its nearby lows.

Statistics Canada pegged the country’s 2019 wheat crop at 32.35 million tonnes, which would be in line with 2018 production, but at the lower end of trade expectations. However, a larger portion than normal of that crop may be of questionable quality — which should see quality premiums widen going forward.

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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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