For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oi l seed prices at ICE Futures Canada in Winnipeg closed the week ended June 19 mixed, with canola lower. Canola was pressured down by a big slide in the Chicago soy complex and talk that China had canceled several cargoes of canola. Better weather for the eastern Prairies was balanced off by much poorer weather for the western Prairies. The dryness in Western Canada, however, started to take centre stage late in the week, causing the market to rally despite weakness in the U. S. market. The weakening in the Canadian dollar also gave support.
Routine exporter and crusher buying was augmented by some speculative buying, while the selling was mainly commercial with farmer selling very light, except for deliveries under contracts.
Western barley posted small gains in very light trade. The lack of interest in the market reflected the fact that ICE’s revised barley contract was coming on the board on Monday, June 22.
Chicago grain and soybean futures posted large losses, as the speculators who drove the market up started to liquidate on concerns that the much-talked-about resurgence in the U. S. and global economies might not be happening. Bearish technical signals also encouraged their selling.
Soybeans drew some support in the old crop from the tightness of supplies. However, by week’s end, that had very little impact as the market reacted to some panicked speculative selling. The new crop was pressured down by more favourable conditions for the soybean crop. There was really little fresh news to drive the markets last week. Corn futures tumbled, breaking below US$4 per bushel on the spec selling and improved weather for the U. S. corn belt. The market ignored a firm tone in crude oil prices and a continued strong weekly export pace.
U. S. wheat futures also saw large losses on commodity fund speculative selling, with Minneapolis spring wheat futures dropping below the $7/bu. level. Favourable growing conditions for the winter wheat crop and the spring wheat crop weighed on prices, as did the advancing harvest in the winter wheat area. Sluggish exports and competition from the large global wheat supply also pressured the market down.
Several major developments appeared in the grain markets this past week that will affect your prices in coming days and months. For canola, there was a report that China had cancelled two cargoes of canola. However, exporters said there was no cancellation but rather a delay in the purchases into the new crop, as current Chinese crush margins are poor.
However, another problem that has appeared for the canola trade is a drop in canola deliveries by farmers as drought conditions continue on the western Prairies. Exporters have commitments of over 540,000 tonnes of canola through July 18 and some
panic has appeared amongst the exporters. Basis levels have climbed as high as $12 per tonne above futures in the old crop in Alberta in order to attract supplies. The drought has also slowed new-crop pricing with exporters indicating they have export sales on the books for the new crop from September on. This has caused the new-crop basis to tighten to even with futures.
The drought conditions on the western Prairies and the excessive cool and wet on the eastern Prairies have already caused traders to discount the June 23 StatsCan acreage report. They generally feel that acres, particularly for canola, barley, oats and flax, shifted significantly after the report was taken. The feeling is that canola acres have dropped as much as one million acres because of the weather problems.
The dryness problems in the western area are significant but will become devastating for farmers and for Canadian production if no significant rain appears by the second week of July. Traders feel that the crop could be reduced by as much as two million tonnes of canola.
Meanwhile, the market is also starting to get a handle on U. S. acres. The U. S. Department of Agriculture will bring out its report on June 30. Ahead of that, closely watched Informa Economics forecast the U. S. soybean area at 78.9 million acres, up from the March forecast of 76 million. While this will result in a much larger crop, the late seeding will reduce yields. However, it still looks like U. S. 2009-10 soybean ending stocks could be negative for soybean and canola prices.
For corn, Informa forecast seeding at 83.1 million acres, down from the USDA March estimate of 85 million acres. This will lead to very tight U. S. corn ending stocks and prices in the $5/bu. area. It will also support barley and oilseeds by stimulating demand for meal as a livestock feed.
Looking at the crops that I wasn’t able to deal with last week from the Canadian Wheat Board’s production news conference, the durum outlook has improved as the CWB said the crop was likely to be 4.4 million tonnes, down from last year’s 5.5 million. This will tighten ending stocks at a time when U. S. supplies will be down. This will result in higher prices and strong exports for durum. The European crop will be down and that is good news, but offsetting it will be a large North African crop.
The CWB indicated that oats output would be about 2.7 million tonnes, down from 4.4 million last year. This suggests considerable tightening in supply, with ending stocks under 500,000 tonnes compared to 1.2 million in 2008-09. It also suggests that current oats prices are undervalued and the market will eventually rally well above $3/bu., maybe even as high as $4, depending how high corn goes.
The CWB felt that flax output would likely hit 900,000 tonnes. This might be a bit low, as it is felt that farmers put in more flax acres than the CWB forecast, as flax would hold up to cold temperatures better at harvest time. The result would be higher ending stocks than 2008-09’s 240,000 tonnes. As a result, look for flax cash bids this fall to be in a range of $9.50 to $11 per bushel.
However, this is still early in the growing season and the market is starting to talk up El Nino and its negative impact on weather in Australia and Asia, and also a building high pressure dome that will dry out the northwestern U. S. Plains and areas south of the Trans-Canada Highway in Alberta and southwestern Saskatchewan. The only certainty that can be said for the rest of this growing season is that it will be volatile.
– Don Bousquet is a well-known market analyst
and president of Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.