#1Canola: Mar 11($13.12) Jul 3($13.27) Sep 19($12.05)
#2Pea: Mar $8.73 Aug $7.63
#1Flax: Mar $13.88 Oct $12.49
#2GrLentil: Apr 21.5c
#FdWheat: Aug $5.20
#2AD: Sep $6.87
#2HRS: Sep $6.69
Yesterday’s late day sell-off essentially confirmed a long overdue correction in grains. It may be mild – correcting over time with little price change – or it may be deep – dropping another 4-8% in price quite quickly (from 50c in Corn to $1 in Canola and Beans). It can do either type of correction and still remain in a substantially Bullish trend.
The driver of this correction is Corn. Beans, and Canola should outperform for both Technical and Fundamental reasons. Wheat remains an outlier because stocks and acreage are simply not tight.
It was Corn that showed the Key Reversal on Monday that lead to the follow through yesterday. Beans were close but held and Canola barely budged.
Corn planting in the US has started already (it’s only mid-March) and the weather is perfect for all the intended acres – or more – to go in, as 96.5 million acres is starting to be bandied around the trading floor.
This is Bullish Beans, as many of those acres will come at Bean’s expense as the last seeded acres of Corn typically switch to Beans with its shorter growing season. This will be the first year in a while where that may not need to happen.
Furthermore, a Bullish wildcard for Beans is Canola. While 60 million acres of Canola isn’t 250 of Soybeans, it is significant and when you talk in terms of an “Oil Acre”, 250 million is only 40 million acres of Oil, 60 million Canola acres is 20 million acres of Oil. In an Oil driven market, Canola is certainly a player, though we can’t ignore Palm either.
But right now Canada’s 20 million acres are drying out and 20 million in Europe have seen frost in the East and now an emerging drought in the West. Oilseed Demand is not slowing but Production this year certainly is. China’s Bean demand is up 6% year over year but Global production is down 8%. Good weather in the US may steal another 1% off that by keeping it in Corn acres. It will take price spread to keep those acres.
Much of this Bullish scenario for Beans and Canola is already in the price as we were just $13.40 For Canola, but a deep correction pulls it back out and is why I believe it will only be mild and will prove healthy for the Oils.
Any correction is concerning because a test of a trend-line always has the potential to break it and completely change the situation. Furthermore, Corn may do so much damage to itself that the Oils break key levels of their own but supplies should be too tight for that with so much critical weather in front of us.
The Fundamentals for the Oil Grains are positive and this correction should prove healthy. There’s an off-chance that it’s already over.