For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oilseed prices at ICE Futures Canada in Winnipeg closed the week ended Sept. 18 mixed, with canola lower. Canola was pressured down by the advancing harvest, the firm Canadian dollar, bearish technical signals and ideas the canola crop could be as large as 11 million tonnes. Underpinning the market were a firm tone in the Chicago soy complex, improved crush margins and talk of export demand. Crushers and exporters were buyers with commercials, elevator companies and speculators the main sellers. Western barley edged higher on the lack of country movement despite the advancing harvest.
Chicago futures ended mixed with corn a bit lower and soybeans higher. Both
markets saw big gains on a frost threat for both the soybean and corn crops. By the end of the week corn had given up all its gains, scoring small losses on the favourable growing conditions and talk of huge yields. Soybeans held onto moderate gains as exceptional export demand gave support despite the favourable growing conditions and talk of a record-large crop. The lack of frost in the forecast also weighed on the market.
U. S. wheat futures posted declines in light trade. The ample global wheat supply weighed on prices. However, seasonally, the wheat market tends to put in its lows about now and that underpinned the market.
The Statistics Canada grain stocks report from Sept. 9 confirmed there was no tightness of supply for flax and oats and suggests the outlook may be poor through the 2009-10 crop year.
StatsCan reports that 2008-09 flax ending stocks were 227,000 tonnes, up from last year’s 167,000 tonnes and above trade forecasts. That news weighed on the market, but the big negative news for the flax market came from Europe, where they found a deregistered, never commercialized, genetically modified Canadian flax variety in a German food-processing plant.
The news sent the flax market reeling, with cash bids falling sharply and causing some buyers to back right out of the market. Things have not changed yet as everyone tries to assess the situation.
My feeling is that we will come through this problem and things will return to normal, eventually. However, in the meantime, the flax market is turning increasingly negative.
First, StatsCan says there is more flax around than expected. Now, as the harvest progresses, things look like production will be large, with some grain trade sources feeling production could touch a million tonnes, up from last year’s 861,000 tonnes.
We could have about 1.2 million tonnes of flax facing an uncertain future this fall. Flax exports were expected to be about 625,000 tonnes in 2009-10, with about 500,000 tonnes expected to go to Europe. Europe has little option over imports of non-Canadian flax. Importing flax from the former Soviet states and the
U. S. would account for only about half its needs. It will be interesting to see how the Europeans solve their quandary. They could import more linoil, crushed from Canadian seed, as the GM attributes do not show up in the crushed product.
Regardless, it will be bad news for Canadian flax prices in the short term and the feeling generally is that ending stocks of flax, which were expected to climb to the already burdensome 300,000-tonne area, will now climb even higher and may hit 500,000 tonnes.
This will keep flax prices depressed and it looks like values will range in the $6-to $8-per-bushel area. Quick resolution of the European problem could result in cash bids rising as high as the $9/bu. level, but it would seem that $10/bu. flax is now a thing of the past.
For oats, the StatsCan report was also pretty bearish, pegging 2008-09 ending stocks at 1.527 million tonnes, up from 950,000 tonnes last year. This was well above trade expectations which were closer to a million tonnes.
The saving grace for oats is twofold. First, production is expected to be well below last year’s 4.27 million tonnes, but up from early forecasts. It is felt the crop will be about 3.1 million tonnes. The other positive factor is that the corn outlook is improving, despite the record-large corn crop.
If Canadian oats output is 3.1 million tonnes, that means available supply will be 4.6 million tonnes. Consumption in 2009-10 is expected to be about 3.5 million tonnes, which will result in ending stocks being around 1.1 million tonnes. This is still a large ending stocks level, but it is improved from 2008-09.
Currently, oats cash bids are depressed, with Saskatchewan bids as low as $1.28/bu. while Manitoba bids are sitting around $2/bu. Once we get past the Canadian and U. S. harvests we are likely to see values improve, although with the large oats supplies in Canada we are unlikely to see a substantial rally and Manitoba’s best bids will probably be no more than $2.50-$2.75/bu. They could touch $3/bu. if U. S. corn returns to the $4/bu. level.
Some support in the market will come from an improved outlook for U. S. corn as exports are going to be strong, as is domestic demand. Ethanol is proving to be a major support for the corn market, with current crude oil prices encouraging all-out ethanol production, with signs that ethanol output will only get larger. This will keep U. S. corn futures above the $3/bu. level at harvest and lift them to almost $4/bu. during the winter, which will help out oats prices as well.
The ample global wheat supply has pushed global wheat prices to their lowest level in three years and nothing seems to suggest that the wheat market will see a quick turnaround. Once again there has been no major weather problem that has tightened the market. The problems in the Argentine wheat crop were offset by larger production in the EU and Ukraine.
Weather-wise, the only major problem on the horizon that could turn the market around quickly is the Australian wheat crop, which has been facing a dryness scenario induced by the El Nińo current in the Pacific Ocean. So far it has threatened but not really affected the crop.
Without a major problem in the Australian crop, the rebound in this market will take time and reflect falling production as farmers react to the 24 per cent drop in wheat prices this year by seeding less. Informa Economics forecasts U. S. winter wheat acres to fall by almost five per cent, to 41.6 million acres.
Look for wheat markets to eventually rebound. However, in the short term, the Canadian Wheat Board’s pool return outlooks (PROs), out on Sept. 24, are expected to be lower.
– 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.