Commodities not immune to risk-off mentality

Coronavirus fears drag grains, oilseeds, equities and energy markets lower

A delivery worker checks his mobile phone on an electric bike filled with vegetables on a street in Wuhan in China’s Hubei province on Feb. 28.

A sharp drop in global equity and energy markets during the last week of February did not spare agricultural commodities, with ICE Futures canola falling to fresh contract lows and Chicago grains and oilseeds also under pressure.

Fears over the COVID-19 coronavirus were heightened during the week, as more cases were confirmed outside of China and efforts to contain the spread filled the financial headlines. The Dow Jones Industrial Average lost about 14 per cent of its value during the week, while Canada’s TSX lost 11 per cent.

With no real end in sight to the outbreak, uncertainty over what it will mean for the global flow of commodities had investors putting on short positions and buyers content to watch prices fall and only pick up bargains on the slide.

Disruptions to rail traffic across Canada amid ongoing protests in solidarity with Wet’suwet’en hereditary chiefs in British Columbia opposing a natural gas pipeline through their territory, added another layer of uncertainty to the canola market. The chiefs met with federal and provincial government officials during the week, but the situation remains unresolved.

Vessels are backing up at Canada’s West Coast, while visible supplies in the commercial pipeline remain large.

World vegetable oil markets have moved steadily lower since the start of the calendar year, also contributing to the selling pressure in canola. Political issues between Malaysia and India accounted for some selling in palm oil, which also worked its way into the canola market.

The only real bright spot during the week was in Chicago soymeal, which managed to move higher despite losses most everywhere else. Reports that Argentina may be raising export taxes on the livestock feed gave that market a boost.

The Canadian dollar also fell during the week, losing roughly a cent relative to its U.S. counterpart. The crashing currency helped cushion the blow to canola prices somewhat, helping underpin crush margins to some extent.

Canola may be looking oversold from a chart standpoint, after dropping sharply during the week. However, there’s still plenty of room to the downside, when one looks at the weekly charts. The May contract was trading at lows around $452 per tonne on Feb. 28, but the weekly continuous chart places more major support $20 lower, near $430 per tonne.

While COVID-19 will likely continue to drive the agricultural markets for the time being, attention will also soon shift to North America’s spring weather. The advancing South American harvest could also provide some direction.

About the author


Phil Franz-Warkentin - MarketsFarm

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

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