After trading at a significant discount to soybeans last year, contrasting production scenarios have resulted in canola gaining value relative to soybeans over the last few months.
“Historically canola futures have traded $80, sometimes even $100 higher than soybeans. Last year was exactly the opposite,” explains Chuck Penner of LeftField Commodity Research. “What we’re starting to see is canola regain some value relative to soybeans. Essentially soybeans are dropping harder than canola.”
That spread between canola and soybean values could grow wider, he suggests.
“As this year unwinds and canola stocks are worked lower — maybe even getting a little tight — we have this record soybean crop in the US, which in my mind still has a ways to go down,” says Penner. “I think canola can hold up relatively well compared to soybeans, but soybeans will still weigh on things.”
The trend lower in soybean futures continued despite a bullish surprise in the USDA’s Quarterly Stocks Report published on Tuesday. Soybean carryover into the new crop year was pegged at 92 million bushels, well below trade expectations of around 126 million and dropping below 100 million for the first time since 1973.
While it came as a shock, the smaller stocks number meant little to traders who are focused on the record crop coming in.
“It was kind of a collective yawn and they went back to selling soybeans,” notes Penner.
Chuck Penner’s conversation with Kelvin Heppner following Tuesday’s USDA stocks report:
Click here to listen to this interview and others from RealAg on Soundcloud.