Oilseed Highlights

• First week of trading for 2023 is under our belt and market trade news became more prominent in the last few days.
  • First off, the tail end of this week is loaded with important AG/Econ reports
    • On Thursday, January 12th, the following reports will be released:
      • United States consumer price index (Markets hoping for 6.5% vs 7.1% last month)
      • USDA WASDE Releases: Crop Production, Annual Production Report, Grain Stocks as of December 1st, USDA FAS Report
      • CONAB (Brazils Domestic Reporting Agency) releases its important crop production estimates.
  • Markets are placing heavy emphasis on Thursdays reports.  Markets are positioning themselves ahead of the report day.
  • Pre report estimates are mixed, but US export pace is expected to be adjusted lower to a degree due to higher domestic prices and the South American crop that is coming online in over the next few weeks.
  • Most ag commodities lower for the week, with the exception of soymeal and soy oil.
  • Stocks facing weakness upon negative economic outlook.
  • West Texas Oil up for the week.  Sitting at around $75 per barrel.
  • Canadian Dollar higher, US dollar lower. (Bodes well for US grains, Negative for Canadian Grains)
• 174,000 tonnes of Soybeans sold from US in the overnight trade. Rumored to be Mexico making the purchase.
• Brazil’s new government officially took office January 1st.
  • Brazil has been protesting massively in the past week against the newly formed government.
  • Largest protests since 1980’s
  • 1,500 protestor have been arrested so far.  Massive truckers protests as well, causing logistics issues ahead of the upcoming harvest of Soybeans and Corn.
• On another note regarding Brazil:
  • New Agriculture minister in Brazil released a statement of their governments initial vision.
    • They want to improve CONAB to be more like USDA by providing local and regional forecasts, rather than the current situation only.
    • Looking into creating a domestic stockpile of crops to help ease inflation for consumers.
    • Research and implementation of green technologies to reduce carbon emissions and reduce demand on foreign fertilizer.
  • This is a shift from Bolsonaro’s policies which largely emphasized solely increasing production.
• Bank of Canada out with its first interest rate announcement for the year on January 25th, 2023
• US Federal Reserve announcing this week that inflation is not under control and that it will likely need to continue to raise rates throughout 2023 until inflation is controlled.
  • US Fed having a challenging time wrestling inflation, rising rates has not yet increased unemployment. (Rising unemployment rates generally signal a need for a “Pivot” in policy). This puts the Fed in a challenging position as consumers become increasingly strapped for cash.
• On the first trading day of last year, March 2022 canola sat at $1,024 per tonne. Today, March 2023 trading for about $140 per tonne less on the futures. (January 3rd Data, For Reference Only). Price on January 10th is $849.10
  • March Soybeans traded $13.89 this time last year, this year they are sitting at $15.24 to begin the year
  • March Soybean oil traded at 58.33 last year vs 64.07 this year
• Markets watching closely the weather in South America:
  • Argentina remains concerningly dry as the crop that is planted remains is in poor condition in some key regions.
  • Argentina’s soybeans were rated at just 8% good or excellent on January 5th.
    • The same time last year, crop was listed at 50% Good or Excellent.
  • Some of Argentina’s prime production regions have yet to be planted due to extreme dryness (And Likely Wont Be). Some rains did come since January 1st to entice last acres to be planted… but weather turns hot and dry again for the week ahead.  Cordoba and Buenos Aires remain very dry. (Two largest production regions)
    • Another thing to mention is the two primary production states in Argentina also have been facing intense heat as well.
  • Brazil just starting to harvest some very early soybeans in Mato Grosso. Just a few early fields have been harvested, typical for the time of season.  Expect this number to be at least 25% for the state by end of January.
  • Brazilian crops cover a vast geography, some key states (Panara, Rio Grande Sol) are in pod filling stages and markets are watching to see if they get critical precipitations for the crops in this part of their lifecycle.
    • This time is much similar to the “Late August Rains” US croppers rely on so much for Soybeans.
      • • Brazil getting the rains in the coming week ahead.
        • Brazilian crops generally rated as fairly good.  No one is ready to add or reduce yield estimates yet.
• India announced it was keeping its reduced import tax on vegetable oils until March 2024.  Veg oil tax reduction came into place mid 2021 and has effectively made import taxed around 5% vs 36% prior to the “temporary policy”.
  • The import reduction is for soybean, sunflower and palm oils and was set to expire March of 2023, prior to being extended.
• Indonesia is temporarily reducing palm oil exports from now through April’s holiday period of Ramadan.
  • This was seen as positive news for palm oil futures but the announcement also came with a twist.
  • Indonesia is pushing back its proposed biodiesel blending increase from B-30 to B-35 until February 1st.
• Chinese rapeseed imports in November came in at the highest level since January 2019. Over 400,000 tonnes.
  • Numbers released late December
  • Most of the canola imported was of Canadian origin.
• China also major buyer of Argentinian old crop soybeans in November. China purchased nearly 1.2 mmt of Argentinian soybeans in November, up 18% year over year.
• December highlights for USDA WASDE report and Brazil’s CONAB report: (Keep in mind these data figures will be updated on Thursday, January 12th.)
  • USDA WASDE came in quite dull.  Neutral to slightly bearish in its reporting.
    • United States Soybean and Wheat stocks came in flat, corn increased slightly
    • South American production figures untouched.
    • Global corn stocks dropped 2 mmt, Soybeans increased very slightly by 600,000 tonnes, Wheat dropped by a small 500,000 tonnes.
  • Brazil CONAB left most figures untouched
    • Brazil did drop corn production by 600,000 tonnes to 125.8 mmt
    • Brazil essentially left soybean production untouched at 153.5 mmt
• Australian ABARES (Their version of STATS CAN or WASDE was out early December)
  • Looking at 2nd largest winter crop on record
  • Quality seems to be a concern in many flooded regions.
  • Canola production is expected to hit 7.3 million metric tonnes.  This is a 4% increase over last years record setting crop as well.
  • Next Report Out March 7th.
• China so far has been the export destination for 75% + of US soybeans. US Export share will be watched into the coming weeks to see who will keep market share (North America vs South America)
• US soy and soybean oil priced higher than global counterparts. This is USA’s time to shine and get the most crop out the doors as possible as majority South American crop starts to come online in few weeks.
• Russia, Ukraine and The United Nations agreed mid November to extend the Grain Corridor for another 120 days.
  • This means the export corridor is expected to remain open until mid March 2022.
  • Russia and Ukraine generally have most of their grains exported by this time of the year.
  • It is in Russia and Ukraine’s best interest to keep the corridor open, especially Russia as they have a record wheat crop to move out of the nation.
• Statistics Canada came out December 2nd
  • Canola production came in about 1mmt less than average estimates heading into report day.
  • See chart’s below. Canola figures for 2021 and some years prior were adjusted recently as well, moving last years production from 12.9 mmt to 13.8 mmt.

Soybean Oil (Green)  – European Rapeseed (Purple) – Canola (Black)

Spring 2022 until End of 2022 Action

Global Vegetable Oil Pricing

USDA WASDE DATA – December 2022

Special Crops

• • Special crops remain quiet. Many markets are being fed by little news.
  • Indian rabi chickpea crop looks to be back to average levels after a slow start to the season.
  • 2022 Kazakhstan Flax crop is estimated below 800,000 tonnes. Up from past two years.
    • This is keeping lid on Canadian flax price potential as cheap Russian and Kazakh flax are abundant in the market.
  • European Union Durum exports higher than normal.  Import pace lowest in a decade.
  • Heavy rainfall during the harvest in eastern Australia has downgraded the Barley crop.  Upwards of 60% of the Australian barley crop is grown in the region.
    • Still looking for a big barley crop. 4th largest on record and 13.4 mmt of it, just the quality is being sacrificed.
    • Most of the crop is finding its way into middle eastern markets for the time being
  • Flax exports from Russia hit a record 975,000 tonnes in 2021/22
    • Russia has been flooding several markets with Flax this year so far as well and it is hurting North American export prospects.
  • Brazilian Sugarcane crop expected to be the smallest since 2011, resulting in a lower supply available for the nations ethanol market.
  • European Durum crop is expected to fall to 6.9 mmt, 800,000 tonnes lower than last years production.
  • Canadian Durum crop is high quality, over half as a #1.
  • Canadian flax exports are slower, larger than expected ending stocks come in. Most since 2017/18
  • India has announced Lentils will remain exempt from levy of 10% until March 31^st

South American Crop Production

USDA AMS – GRAIN Rail Car Movement (Weekly)

Grains

• Grains mostly drifting lower for the week.  Corn down 2 cents, Minny Wheat down $0.09. Kansas City down $0.17 and Chicago down $0.31.
  • Markets awaiting Thursdays report day to give traders some numbers to “Sink their teeth into”. As we look for the first set of fundamental figures for the 2023 year.
• Reports of Insurers cancelling coverage of war risk within the Black Sea region including Ukraine, Belarus and Russian ships.
• Many reinsurers and insurers renew 1 year contracts at the beginning of the year.
  • This has been speculated for many weeks as insurers are getting first crack at removing the policies in many cases.  War in Ukraine began late February 2022.
  • This has not affected shipping outlooks for the time being.  Russia is expecting to have record first half 2023 wheat export pace (Which was expected and needed to move their crop)
• India looking to sell upwards of 2.1 million tonnes of wheat into its domestic market to help with food inflation.
• China moves to gain efficiencies in its state buying program by forming a new agency. COFCO and Sinograin will work together to manage the new reserve company to further ensure food security in the years ahead. Operations are set to begin in January / February.
• Buenos Aires Grain Exchange:
  • Argentinian Cron condition sitting at 13% Good to Excellent vs 41% last year.
• EU MARS report out just prior to Christmas holidays.
  • Winter crops look fairly good. No concerns yet being posted for any winter crop.
  • Pocket around north eastern Germany is most at risk heading into spring, this pocket swings into Poland and up into Sweden and Finland
• China removes most COVID policies. Economy is facing many headwinds as hospitals are overloaded and domestic production facing logistical, labour and capital challenges.
• United States Federal Reserve increased its interest rates once again in its December announcement by 0.50%.  Fed signaling that there will be more to come early in 2023 but the severity and frequency of the hikes may drop.
  • It will all come down to the almighty Inflation number. Global reserves working to beat the beast of Inflation and their limited tools to do so will be used to full extent.
• Wheat was not friendly to large production numbers out of the Australian ABARES report early December. 36.6 million tonnes of wheat is expected to be harvested of varying qualities.
  • This is a record sized production and 1% larger than last years figures.
  • 2019/20 production came in at 15.9 mmt although drought year.
• Russian attacks have been destroying Ukranian infrastructure and it is now anticipated that only half of the exportable crop will actually be exported from Ukraine.
  • Massive attacks on rail, ports and electrical infrastructure is putting exports behind pace.
• Ukrainian grain shipments very delayed.
• Statistics Canada published some big wheat numbers in its December report.
  • Big 25.7 mmt of spring wheat production, 4th largest in past decade.
  • 2013 still takes the cake for largest spring wheat crop at a whopping 27.6 mmt
• Argentinian production of wheat coming in at around 10mmt per local sources (USDA 15mmt, expect that number to be adjusted on Thursday). Typically they produce a 19 to 20mmt crop.  The nation will be quite short on exportable crop given that they keep just over 6mmt domestically.
  • Brazil is typically a major importer of 5 to 6 mmt of Argentinian wheat.
  • Brazilian production has been increasing in years. Expected at 9.4 mmt vs 7.7 mmt last year and 6.2 mmt year prior.
• US winter wheat issues persist. The crop went into dormancy in some of the worst shape it has ever been in since record keeping began in mid 1980’s. Major possible winterkill event took place last half of December.
  • US winter wheat acreage is critical to the overall US wheat crop. Over 70% of US wheat production falls into the winter wheat category, 30% falls into spring wheat and durum (mostly spring wheat)
• US Wheat expensive to other global ports of origin. US wheat over $100 per tonne more expensive than worlds cheapest wheat.
• Ukraine planted 30% to 40% less winter wheat.
  • Input Financing, logistical issues and the fact the nation is at war sum up most of the cause for the drop in acres.
•  Russian crop size is quite large, pushing over the mega 100mmt mark. This is easily be 10mmt to 15mmt over a previous record crop size.
• Europe’s 2022 corn crop is expected to be the smallest in 15 years.
• Ukrainian wheat production seen falling to 17.4 mmt by private analysts. This is down from roughly 33mmt in the year prior.

See Ukraine/ Russia Chart Below. Levels Indicated Were At Start of Conflict.  Numbers Have Changed, Put In Place For Reference.

Charts