The soybean complex has been gaining strength, which is helping lift canola futures that were already in a supportive environment thanks to the tightening stocks situation. This week, we wanted to discuss some of the elements that are adding support to soybeans and the implications for canola futures.
USDA’s September 1 stocks total shocked the market, implying that use during June-August was strong — thanks to strong exports and crush during that period. New-crop supplies have steadily been reduced as well on trims to yield throughout the season. USDA’s report on Friday further confirmed tightening supplies on lower acreage and production for the US as well as higher exports resulting in ending stocks being forecast at 290 million bushels.
While the country is still dealing with African swine fever, the hog herd is recovering, which is resulting in increased demand for soybean meal versus this time last year. Plus, China boosted its other animal herds during the pandemic, and these herds also still need meal. While imports are around 97 million tonnes for 2019/20, we expect a larger volume for 2020/21. On top of that, some exporting countries also increased herd sizes to meet Chinese pork import demand, with feed demand for those herds strong as well. Crush margins for China are strong, which is also not discouraging imports of soybeans.
Brazil’s seeding season is here, and the top-two producing states need moisture. Both states are running behind normal seeding averages, with Parana notably behind. It is still a bit too early to get excited about yield losses, and producers there can make significant progress in a short time. But, what is being talked about is that the later the Brazilian crop, the longer other exporters have an opportunity to export in this marketing year. Plus, this further opens the window for corn exports with Brazil’s main corn crop following its soybean harvest. The weather forecast calls for some moisture in the near term, but the moisture situation remains less than ideal for now. Brazil also could have been too aggressive on selling its 2020 harvest. Brazil is importing larger volumes of soybeans earlier in the year versus recent history.
Altogether, FBN looks for higher soybean prices in the coming weeks, which means that canola futures could be further supported. Additional selling opportunities are expected to be present in the coming weeks. With China coming off holiday this week and the fundamentals discussed above, we look for additional strength in the soybean futures market.
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