If you are having trouble viewing this email, view it here.

Strategy Showcase – January 14, 2019

By Mike Jubinville

QUOTE OF THE DAY

"Everyone thinks of changing the world, but no one thinks of changing himself."
- Leo Tolstoy

MARKETSFARM READERS NOTE...

Mike here... the winter speaking season continues. Tuesday afternoon (Jan 15), I’ll make a quick run up to Clandeboye, Manitoba to speak at the South Interlake Grain Info Day hosted by Manitoba Agriculture and the South Interlake Crop Testing Committee.

As for MarketsFarm reporting...only an AM Report and Closing Market Review on Tuesday. Then back to regular reporting for the remainder of the week.

*** MARKET NEWS & NOTES...

Chicago soybean/corn complex, ICE canola futures and US wheat markets were all under price pressure today, with equity and energy markets also starting the week with a defensive tone. A forecast calling for least a near-term improvement in Brazilian rains contributed to weakness in the grain markets as well. Wheat markets took back Friday’s gains with no confirmation that Russia will limit its wheat exports. Next meeting between Russian ag officials and wheat exporters isn’t until next month. News remains was limited for the ag markets.

Soybeans

Chartwise... Chicago soybean Mar futures ended 6 cents lower at $9.03/bu...dropping below both its 20- and 50- day moving averages amid pressure from outside markets, lower than expected China soy imports in December and a 2 week void in China-US trade talk updates (next meeting Jan 30). While weaker on the day, the bean market has maintained its upward trend action drawn from the lows posted in September. But that said, the bull pattern on Chicago futures is fading and needs to renew its vigor soon.

China imported 5.72 MMT of soybeans in December, up slightly from 5.38 MMT in November, but sharply below year ago December imports of 9.55 MMT and the lowest import total for December since 2011. 2018 calendar year total imports of 88.0 MMT were down nearly 8% from 2017 imports (95.6 MMT), the first annual decline in soybean imports since 2011.

Prairie Soybeans

Looking at Canadian Prairie soybean cash bids...rather disappointing. Here in Manitoba’s Red River Valley, I see cash bids around CAD $10.20/bu or the equivalent of about US $7.80/bu. Then looking just over the border in North Dakota...Jan del US $7.84 + $1.65 (Trump's subsidy payment) = US $9.49/bu or CAD $12.42/bu.

Trumps Market Facilitation Payment...the US government subsidy to American growers that is certainly not available to growers on this side of the border, sure makes a difference in net soybean income. Looks wacky and I often wonder why the ag sector has not spoken up.

When Trump’s trade war started and US bean prices dove lower, at least for a time leading into the fall season, Canadian growers were cushioned by a strong cash basis...comparable to US cash price + 25% tariff landed China...or a price that was similar to Brazil price landed China. That is now gone. That's because Brazil landed China price is now “cheaper” than US landed without the subsidy. $10/bu here is something like 50 cents over basis...it was $1.50/bu over, maybe close to $1.75-$2.00 at the peak...though of course bean futures were lower at the basis peak.

Regardless...Canadian soybean farmers are getting a raw deal relative to US growers. I view the Trump subsidy as an excessive and unfair trade practice, but no one says a word. (See chart of Manitoba Cash Soybean Prices below on website version of this report)

Canola

ICE canola futures took a bearish signal from the CBOT soy complex and turned lower today as well. The nearby canola March contract declined $3.60 to close at $479.70...once again testing down at key chart support at the $480/tonne contract low. I will not yet consider this a breakdown of chart support...not yet...but it is a serious test...and further price weakness from here suggests a downside price target at the continuation lows around $471/t that were set in November.

Canola futures are starting to dip into oversold technical conditions, though not suggestive of clear bottoming action at this time. The Slow Stochastic indicator is nearing oversold (once it drops below 20 points), while the MACD indicator is suggestive of a possible bullish crossover forming. But again...neither signals offer clear technical indication of a bottom yet...other than the psychological power of the market down here holding at $480 on the nearby Mar contract. Is that enough to hold?

Should be mentioned that traders are questioning "who" are the potential market sellers with dry powder to fire off? Farmer selling interest in the cash market has been strong in recent weeks, but has started to wane. Spec fund participants in the futures market are already heavily net short the canola futures market and have been so for some time. The canola market will require substantial outside influence from global oilseed prices in order to press declines from here.

Wheat

US winter wheat futures finished today 5 to 6 cents lower, while Minneapolis spring wheat futures posted losses of 3 to 4 cents/bu. Futures ended low-range across all three markets.

Wheat futures were pressured by a general lack of buyer interest across the grain and soy markets today. Traders are still waiting on a burst of export demand for US wheat to signal the rest of the world is running tight on exportable supplies and confirm US prices are a value buy. There have been hints of that, but nothing solid enough to spark sustained buyer interest.

Weekly US wheat export inspections were up from the previous week and stronger than expected at 545,804 tonnes. But while Russian wheat prices are climbing, there are few signs the global leader in wheat trade is going to slow its export pace.

Russia still has wheat left for export. They always export heavily early in the marketing season, and taper off into spring. They may at some point bring in some limits to exporters, but Russia wants those exports, both to get foreign currency, and also because they are obsessed with beating the US out of as much business as they can.

Still sluggish signals from the wheat markets, with near-term price direction uncertain. The world is exhibiting behavior that it can get enough “supply-push” available wheat supply for alternatives sources...and perhaps, there is a larger than expected exportable surplus from non-US origins without needing to go to the US in any major way. Either way, the clock is ticking on the US wheat export program.

Importers are basically covered through March. Once they get covered through May (in two months or so), they will anticipate a fresh round of new crop availability given increased winter wheat acres planted most everywhere other than the US.

MarketsFarm considers it imperative to make use of Prairie cash basis premiums to exercise cash sales at least up to our 75% sold target to date on opportunities to secure $7+/bu cash sales on 1 CWRS 13.5 wheat. MarketsFarm intends to push old crop milling wheat sales further towards completion within the next 2 months.

Durum

Our MarketsFarm Bruce Burnett notes that after a good start, crop conditions have deteriorated for North African durum. There were some rains last week in Algeria and northern Tunisia, but coverage was limited.

This is a critical time of year for the durum crop in North Africa as most of the soil moisture reserves needed for the crop are accumulated in the December through February period. The taps have shut off since the beginning of December across North Africa, which has limited the amount of soil moisture replenishment.

The durum crop there is still in overall good shape as high temperatures are in the 10C to 15C range and overnight lows are usually near freezing. Crop growth is minimal and moisture demand is low.

The risk to the durum crop is that the dryness persists into March and April as temperatures begin to increase and crop stress hurts potential. This is only a “concern” at the moment, but durum markets will pay attention if the dryness continues over the next month.

Prices have already started to firm in the Mediterranean market. There was a durum tender last week in Tunisia where 100,000 tonnes was purchased for an average CIF (price landed in port) value of US $294.73/tonne which is up nearly US $20/tonne from three months ago.

These price increases are not enough to move Western Canada’s durum market out of its doldrums yet, but they are an indication that traders are becoming concerned.