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Bigger Crops, Canola Prices Rise

For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at

Grain and oi l s e e d prices at ICE Futures Canada in Winnipeg in the week ended Dec. 4 were modestly higher despite weakness in the normally dominant U. S. markets. Canola was supported by strong crusher demand and slower farmer selling. The market also moved above some resistance levels on the charts that prompted speculative buying which helped fuel the gains. Weighing on the market was the large canola supply, continued uncertainty about Canadian canola exports to China and the firm Canadian dollar. Western barley edged up mainly on a lack of farmer selling in very small activity.

Chi c a go soybe an and corn futures ended lower as

the rallying U. S. dollar and weakness in outside markets such as gold and crude oil pressured prices down. The markets also demonstrated a “tiredness” after the recent rally, as buyers turned to profit-taking. Soybeans saw only small losses, with the favourable outlook for the South American crop weighing on values. However, continued very strong demand for U. S. soybeans, especially from China, kept the declines small. Corn futures tumbled on the weakness in crude oil, the advancing harvest and the lack of fresh export demand.

U. S. wheat futures posted losses as bearish technical signals and the strong U. S. dollar prompted speculators to take profits, which sent the market down. The lack of any significant fresh export demand for U. S. wheat also undermined the market.


There were several pieces of significant news in the market last week, with the Statistics Canada crop production report one of the more notable. The report showed that generally, production was larger than the previous StatsCan report, but smaller than last year’s.

One of the biggest surprises came for canola, where production was pegged at 11.8 million tonnes, at the high end of trade forecasts and up from the previous StatsCan report of 10.3 million tonnes.

This is the second-largest crop ever and resulted from record yields in Manitoba and Saskatchewan setting off a disastrous Alberta canola crop. However, there is also considerable skepticism about this number and many feel that the actual production is smaller and much closer to 11 million tonnes. They feel yield estimates were overstated due to the crop being overly wet at harvest time and once it is dried down, yields will come down.

This level of production has caused traders to forecast a huge increase in ending stocks for 2009-10, to burdensome levels. Total use is expected to be in the 11.3-to 11.5-million-tonne area and ending stocks are expected to build to above the two-million-tonne area. There are some traders who feel ending stocks will hit three million tonnes.

This should push canola prices back down to the levels we saw in 2005 when futures prices dropped

below $300 a tonne. Cash bids should fall below $6 per bushel. However, once the report was released, the market actually rallied and traders, who had been expecting to see the market fall $10 per tonne, were astounded to see it rally a few dollars.

The official reason was that a vessel at the West Coast was nominated to be loaded with canola for China, prompting ideas that its problems with blackleg in canola had been solved by Prime Minister Harper’s visit to Beijing. This does not seem to be the case and the Chinese embargo against canola is still on.

All I can point to in this canola rally is a market maxim that says when a market does not go down on bearish news, that market is bullish.

It should be noted that a modest increase in either exports or domestic use will result in canola ending stocks actually being much lower than two million tonnes. Something does seem to be happening in canola and I certainly wouldn’t be selling right now.

I will continue to warn, though, with the huge supplies of soybeans expected to be coming out of South America this year, look for spring prices to likely be lower than winter prices.

StatsCan forecast the 2009 wheat crop at 26.515 million tonnes, above trade expectations and well above the October forecast. This will put a lot of pressure on the Canadian Wheat Board to move wheat. There are already signs that the CWB is taking a more aggressive stance in the export market.


For barley, StatsCan pegged the 2009 crop at 9.517 million tonnes, within trade forecasts and up from the October StatsCan estimate of 9.1 million tonnes. Given that barley demand is anemic with exports sluggish and domestic use reduced, this higher production number is bearish for the price outlook.

Smaller livestock numbers and the use of dried distillers grains has reduced barley domestic usage significantly. As a result, barley ending stocks are going to come in at higher-than-expected levels, possibly as high as 2.5 million to 2.7 million tonnes. This is burdensome and will keep prices down at the $2/bu. level in Manitoba and the $3.50/bu. level in Alberta, although I would not be surprised to see Manitoba values drop below the $2/bu. level and Alberta prices below $3/bu.

Another surprise in the StatsCan numbers was the oats forecast of 2.798 million tonnes, which was below trade guesses and down from the October forecast. In 2008, oats output was a whopping 4.272 million tonnes. Some traders feel the December estimate will be revised higher in the future.

With consumption expected to be around 3.3 millioni to 3.5 million tonnes, oats ending stocks in 2009-10 are still going to be in the one-million-tonne area, which is burdensome. Rail export movement of oats out of southern Manitoba to the U. S. has been quite brisk and this will have to be watched as demand may be higher.

For peas, StatsCan pegged the crop at 3.379 million tonnes, a bit above trade expectations and up from its October forecast of 3.161 million tonnes. Edible pea prices have seen some improvement, as farmers haven’t being delivering and demand has picked up.

However, it does look like exports will be poorer than last year and that ending stocks could climb as high as 500,000 tonnes. The main factor to watch is demand from India, which has been slower than last year, but is expected to pick up.

If that demand does not appear, look for yellow peas to head back to the $5/bu. level while greens could fall back to the $6/bu. area. If Indian demand does appear, then yellow peas are likely to hold in the $6-$6.25/bu. area, while green peas trade in the $7.50-$8/bu. area.

Feed pea values look like they will be quite strong.

– 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.

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