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According to FCC, while low prices will likely result in tight margins for 2020, several factors can shift this outlook. A faster-than-expected rebuild of the Chinese hog herd could grow the demand for oilseeds. The U.S. and China agreed to a phase one deal which, upon implementation, could yield a significant jump in grain and oilseed purchases, raising North American prices.
U.S. wheat prices for the 2019-20 crop year are projected 10% lower than the year prior, resulting in a projection of C$241 per tonne for the 2020 average Canadian spring wheat price.
Weaker global and domestic supplies of durum are expected to result in higher durum prices in 2020; projected at an average price of C$253 a tonne.
Corn profitability is expected to be positive for 2020 based on a much tighter Canadian supply due to 2019 weather challenges. Prices should also improve if estimates of the U.S. 2019 crop production are revised downward as expected.
Canola prices are projected to average C$465 a tonne. Canadian canola production in 2019 was cut by 8.3% to 18.6 million tonnes.
Canadian soybean production fell 19% in 2019, from a combination of reduced acres and lower yields. Abundant U.S. supplies should continue to make soybean prices trend sideways in 2020. Soybean prices are projected to average C$440 a tonne in 2020.
China’s oversized influence on global oilseed markets and ASF
China consumes 27% of all global meat, with 62% of China’s meat consumption being pork. Historically, China only imported 3% of its pork requirements, given its large production capacity. As a result, it accounted for more than 60% of the global soybean trade.
The FAO estimated that China’s pork production declined at least 20% in 2019. Various forecasts call for at least an additional 15% decline in 2020, creating a potentially large gap between demand and supply. Pork retail inflation reached over 100% YoY in 2019 and pork imports are expected to increase considerably in 2020. China’s demand for soybeans will soften. Despite the industry consolidation, Chinese hog operations are rebuilding. The pace of the rebuild is key when anticipating the impact of ASF in the demand for grains and oilseeds.
January 21, 2020/ FCC/ Canada.
https://www.fcc-fac.ca/
