Hedging Next Years Canola Crop?
I've been getting questions recently about how and when to hedge next years canola crop.
I'm not surprised given that the front month March canola contract is near historical highs at $1020/t approximately.
However, when looking out to the new crop November contract it is only trading at $771/t approximately.
The contract high made for the November contract was made last month at $839.5/t.
I'm using the high on the November contract as resistance to indicate more upside if it goes above that level.
On the lower end, I'm watching $725/t as support, or a floor, I don't want to see the November contract go below.
The story for canola has been the short ending stocks and if Canada gets another dry year there might not be any stopping canola from making new highs.
One thing to watch is how palm oil, rapeseed oil and sunoil production are all on the rise in 2022.
Traders might not be able to count on the tightness of those vegetable oils to lift canola.
My plan is to revisit hedging strategies for clients once they know how many acres they are putting in.
I'll most likely consider option strategies over futures to reduce risk.
Using options are an excellent way to protect your price instead of locking in at the elevator if you got caught last year with not being able to fulfill your grain contracts.
Chart sourced from Market Q
Wheat
The weather forecast looks like a mostly warm and dry outlook for much of the U.S. Plains, but it still does not look cold enough to cause damage for the winter wheat crop.
An extensive period of dry weather for the Plains leaves soils in poor condition to withstand much in the way of cold weather without snowfall.
However, right now the wheat market may need help from the other grains to turn back higher.
Wheat prices were being supported a couple weeks ago by the $1.41/bu rally in beans and 35 cent/bu rally in corn.
When soybeans and corn broke lower it didn't take much for the three wheat contracts to follow lower.
Minneapolis wheat in particular has still been trading relatively sideways with leaning a bit more on the lower end.
I've been watching $10/bu on the lower end and the March Minneapolis contract is slightly below that as I write this.
Given the fundamental situation, I could see Minneapolis wheat turning higher again at some point.
Consider $9.80/bu as support if $10/bu doesn't hold and the highs of around $10.60/bu as resistance.
Chart sourced from Market Q
Chart sourced from Market Q
Chart sourced from Market Q
Soybeans & Corn
March soybeans increased $1.41/bu from Dec 14th intraday low to the Dec 28th intraday high.
This was mainly caused from a dry outlook in South America at the time.
Soybeans have pulled back about 40 cents/bu now because of rain in the five day forecast for southern Brazil and northern Argentina, but the second week forecast is still mostly dry for the region.
If the forecast is mostly dry into early January, soybean futures should be well supported.
The futures currently remain technically overbought and are vulnerable to further weakness given the sluggish demand tone and little less crop concerns.
For corn, export sales new was strong than expected, but there is more talk of surprise rainfall for parts of South America.
According to Brazil’s agricultural agency, their 2021/2022 crop will be lowered to 116.4 million tonnes versus a range of 108.5 to 127.3
A supportive development for corn came last week from a surprise decline in ethanol stocks, but that was offset by a decline in weekly production.
Corn futures haven't been able to hold the 30 cent/bu approximate gain given that soybeans have turned lower.
I'm watching $5.90/bu as support and $6.15/bu resistance short term.
Chart sourced from Market Q
Chart sourced from Market Q
Canadian Dollar
This month the March Canadian Dollar futures went to 77.13 cents on December 20th, which is the lowest level in three months.
Since then, the futures have increased to 78.80 cents approximately.
Stock markets rallying, WTI oil increasing $10/bbl, and the U.S. Dollar trending slightly lower have been positive factors this month.
Concerns about the Omicron variant slowing down the world has helped push oil prices lower earlier this month
The Bank of Canada announced they are going to maintain their current inflation target of 2%.
They don’t anticipate a rate increase until April 2022.
A low-for-longer rate environment may sometimes be needed, the bank said, even if it boosts the likelihood that inflation could overshoot the 2% target as the economy recovers.
The U.S. announced this month they see raising rates twice in 2022, which Canada could eventually follow.
If the inflation talk keeps up, 2022 could be a good year for the loonie given that our currency is largely driven by commodity prices.
Chart sourced from Market Q
Cattle
The cattle market may have tested the high-end of the range with the rally experienced this week.
In nine trading days, February live cattle has increased $7.50/cwt approx. and March feeder cattle $10/cwt approx.
While the supply/demand fundamentals may improve during January, there could be a short-term lull in demand.
Technically, cattle futures are overbought and that has sparked some selling recently.
Traders are worried that fill-in beer business next week could be very slow as the record high COVID case count may cause significant cancellations from restaurants and other events.
We might see some profit taking coming into the year-end given the rally.
Chart sourced from Market Q
