July 2018 Commodities Update
We are pleased to provide the following commodities update for July, 2018:
The Canadian dollar is trading at approximately 1.315 CAD to 1 USD. There are a number of factors attributed to the state of the Canadian dollar:
- The Bank of Canada raised the interest rate by a quarter percent
- The US is likely to raise interest rates a couple of more times this year
- Trade tensions between Canada and the US due to the NAFTA uncertainty
President Trump has announced tariffs on an additional $200 billion on Chinese imports and has threatened to take this up to $500 billion as soybeans are the top agricultural crop exported to China (60% of US soybean production).
Oil Market Update
As of mid-July, USDA soybean crop conditions are 69% good to excellent vs. 61% last year. The next few weeks of weather are critical to soybean crop development, however, there is no anticipated adverse weather to disrupt crop development. The prospects of a large crop and the US/China trade tensions have put substantial downward pressure on soybean prices. Prices have nearly hit a 3 year low as China announced their economy is no longer growing at a double digit rate.
Soybean crush margins remain very healthy and you may want to look at covering the rest of 2018 and even into early 2019 as any type of resolution in the US/China trade talks will likely cause the soybean oil markets to rebound substantially.
Canola oil futures are bought off the soybean oil market; however, canola basis levels remain very high. Because of the very high soybean crush margins, more refiners are choosing to crush soybean at the expense of canola and will raise canola basis levels to make up for it. China is also importing more canola for the time being in place of soybean. As previously mentioned, we are at a no-sell for Q3 2018, therefore, if you have not already booked your canola contracts for 2018, you may want to consider soybean instead of canola.
USDA new estimates on acreage as of June 30th indicates that the 2018 acreage is up 8% instead of the 2% originally estimated and the crop quality is much better than last year. There has also been a shift for greater high-oleic crop acreage vs. mid-oleic crop acreage. The split is approximately an 80% HO vs 20% MO with HO Sun becoming more common and, therefore, not commanding the same premium it did several year ago.
Crude coconut oil has lost nearly 40% of its value since the fall of 2017 which is the lowest value in three years. Coconut production has rebounded substantially and both weather and logistics have improved dramatically in the Philippines. They are also starting to see production from replanted trees after the November 2013 typhoon and demand has stabilized with exports down approximately 40% in Q1 of 2018 vs. previous year.
Sugar Market Update
Talks of world supply surplus is seemingly valid for the rest of 2018 and into 2019 even with the recent hiccup with the Brazil trucker's strike, nothing seems to have dented the surplus. The Brazilian Real has slipped on weak economic performance and the strong $USD. Thailand is producing at above-historical average levels and India's sugar production remains strong there is still a bearish/flat outlook remaining for the indefinite future.