Grain and oilseed futures markets on both sides of the Canada/United States border saw some wide price swings during the last week of trade ahead of Donald Trump’s inauguration on Jan. 20.
Updated production estimates from the U.S. Department of Agriculture released Jan. 10 gave corn and soybean markets a boost, as the agency cut its yield and ending stocks estimates. March corn hit the highest level for a front-month corn contract of the past year, while soybeans traded at their best levels since September. Hot and dry weather in Argentina lent additional support to the row crops, with the rising tide lifting canola as well.
March canola climbed above most major moving averages and hit a nearby high of $648.20 per tonne on Jan. 13. However, only three days later values had lost $40 per tonne and were trading at their lowest levels in a month. The soybean and corn futures also retreated as speculative profit-taking and forecasts calling for rain in Argentina weighed on prices.
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Uncertainty over U.S. biofuel policy going forward compounded the downturn in canola and should be a key factor to watch in the months ahead.
The U.S. Treasury announced short-term guidance on tax credits for biofuels on Jan. 10, with that announcement followed by technical guidelines from the USDA on Jan. 15 on biofuel feedstocks and the agricultural practices necessary to meet the new climate-smart requirements. Missing from either release was any mention of canola oil.
Canadian canola oil has become a major feedstock for the U.S. biodiesel sector, with most Canada’s canola oil exports destined for the U.S. With the threat of 25 per cent tariffs under the Trump administration already overhanging the market, the possibility of reduced demand from the biodiesel sector creates another bearish strike against canola.
However, any trade issues with the U.S. should result in a shift in trade flows, rather than an outright shutting of the tap. The fact remains that both the domestic crush and canola exports are running at a pace that would outstrip supplies before the new crop is available. Demand rationing will be necessary, but at what price levels and amid what U.S. policies remains to be seen.
