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June 2018 Commodities Update

02 July 2018

June 2018 Commodities Update

We are pleased to provide the following commodities update for the month ending June 30th, 2018:

The Canadian dollar reached a near 12-month low trading near 1.33 CAD = 1 USD.  A variety of factors are attributed to the state of the Canadian dollar:

  • Weakening crude oil: from a high of $73 a barrel 3 weeks ago to $65 a barrel currently
  • Trade tensions between US and Canada
  • US Feds hiking interest rate by a quarter point, with potential of 2 more hikes in the near future

President Trump has announced tariffs of 25% on up to $50 billion in Chinese imports, with a potential for tariffs on an additional $200 billion in Chinese imports.  China is responding in kind.  Soybeans are the top agricultural crop sent exported to China (60% of US soybean production goes to China), therefore, US exports could drop 18% if China imposes a 10% tariff on US soybeans or US exports could drop 40% if China imposes a 30% tariff on US soybeans.

Oil Markets Update

Soybean:

A very dry and warm May has allowed for smooth and fast soybean planting.  As of mid-June, 97% of the crop was planted (91% is the 5-year average at this time).  Timely June rains have allowed for faster-than-average soybean crop emergence.  90% of the crop has emerged (81% is the 5-year average at this time) and the crop quality is also above average.  73% of the crop is rated good-to-excellent (compared to 67% last year at this time). 

The Soybean crush margins have been very healthy as more beans are crushed to supplement the poor crop in Argentina.  Soybean futures have weakened not only due to the positive supply story but by fears that Trump’s tariffs will be met by similar retaliatory tariffs from China on various goods, including 25% on soybeans.  All of this has led to the lowest nearby soybean oil price in over 2.5 years (July 2018 price at $29.00 USD/CWT).  Look at covering the rest of 2018 if you have not already and maybe even early 2019, if it makes sense.

Canola:

Canola oil futures are bought off the soybean oil market; however, canola basis levels are not great.  The very high soybean crush margins has caused more refiners to crush soybean at the expense of canola.  Canola exports out of the Vancouver port to China are at record highs.  The Statistics Canada canola planting report in April had canola planting 7% lower than last year (anticipated supply is reduced).  However, it is thought that this number was considerably underestimated.

Q3 basis levels are extremely high; Q4 is slightly better.  All of 2018 should be booked if not already.

Sunflower:

USDA Planting Progress in 4 Key Growing States (June 17, 2018).  83% complete vs. 76% 5-year average at this time. Ideal weather has allowed for fast/uneventful planting.

There has been a shift for greater High-Oleic crop acreage vs. Mid-Oleic crop acreage.  The approximate split is 80% HO vs. 20% MO.  HO Sun becoming more common/commoditized and isn’t commanding the same premium it did several years ago.  MO Sun has a smaller crop size; therefore, the more MO you require, the quicker you should lock things up.  The window is currently open on 2019 bookings.