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Trade stalemate leaves markets unmoving

Lack of rain in South America could eventually shake things up

Canola values will likely remain range-bound between $455 and $467 for the remainder of the year.

That’s largely due to the stalemate between the United States and China regarding a trade deal, and also due to uncertain growing conditions in South America and Australia.

On Nov. 27, U.S. President Donald Trump signed congressional legislation in support of pro-democracy demonstrations in Hong Kong, despite objections from Beijing. Chinese leader Xi Jinping said it would take “firm countermeasures” in response to the law, so it would seem trade relations are as chilly as ever.

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Ahead of the legislation on Nov. 26, President Trump had said the U.S. was in the “final throes” of reaching a trade deal with China. That appears to no longer be the case. With no substantive news, markets have largely ignored the rhetorical back and forth.

Key soybean-growing areas in South America aren’t facing drought conditions just yet, but continual lack of rain could spell trouble down the road. That could provide a much-needed boost to U.S. soybean markets, which are currently dragged down by competitive global prices. A weakened Brazilian currency has supported their export market. The United States Department of Agriculture (USDA) expected soybean exports from Brazil to be around 76 million tonnes.

Dry conditions in Argentina and Australia have caused wheat production estimates to be revised lower, providing some support to wheat prices. Also, Russia has cut its expected production by three million tonnes.

Though global weather forecasts are worrying, it’s too soon to tell what sort of impact they will have on global markets. Canola prices have been largely insulated from the tumult due to large carry-out stocks from the 2018-19 growing season.

Last week, employees at Canadian National Railway (CN Rail) were on strike. However, the labour dispute was settled on Tuesday, which provided some support to canola prices. If the strike continued, a shipping backlog could have threatened canola prices. Short coverings were a feature in trading earlier in the week due to the uncertainty posed by the strike.

About the author

Glacier MarketsFarm

Marlo Glass writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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