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The ICE Futures Canada canola market posted sharp gains during the week ended June 18, with prices climbing to their highest levels in six months as excess moisture concerns across the Prairies had the market rationing demand. Bullish technical signals added to the upward move, although canola eventually ran into overhead resistance and some profit-taking tempered the upside by Friday.
The big question on everyone’s lips is, “Just how many canola acres will be left unseeded this year?” Depending on what number you’re starting with, I’ve heard that canola area could be down by five million acres or more from original intentions. Opinions are wide-ranging, with general forecasts calling for about 13.25 million to 16 million acres in the ground when all is said and done.
If the low end of that range holds true, Canada could be working with its smallest crop since 2006, especially as yields for those fields that were seeded should also be hurt by the wet weather. The smaller production prospects come as demand for the commodity is heating up. The two new canola crushers at Yorkton, Sask. will both be operational this year and just happen to be located in the hardest-hit region of eastern Saskatchewan. Basis levels are already starting to turn erratic across Western Canada and could remain choppy until there’s a better sense on production.
Global demand for vegetable oils also continues to pick up, with the particular health attributes of canola oil a supportive price influence.
The Canadian dollar bounced around but was largely unchanged compared to the previous week, providing little direction for canola. However, with the Canadian dollar holding steady and canola values climbing sharply, domestic crush margins tightened in considerably.
Western barley futures saw some small gains during the week, although most of the serious activity remains confined to the cash market. The moisture concerns in Western Canada are fundamentally market-neutral for barley, with the reduced acres being offset by the likelihood that more of the crop will grade as feed. Large global feed grain supplies also mean that Canadian feed barley should remain priced out of the export market.
While canola is more often than not a follower of the U. S. soybean market, the daily reports out of Chicago during the week were somewhat unusual in that the Canadian weather problems were starting to get some serious play as a supportive price influence for soybeans.
Rallies in wheat and oats were even more closely linked to the Canadian weather woes, with both commodities jumping higher on expectations for reduced Canadian supplies.
The gains in corn had little to do with the Canadian weather situation, aside from some spillover from the advances in soybeans and wheat. However, dryness concerns with China’s corn crop halfway around the world did account for some weather-related strength in the U. S. futures, as any crop problems there could lead to more demand for U. S. corn.
Markets over the next couple of months are likely to be heavily dominated by weather issues and the various yield prospects stemming from those weather forecasts. Firmer ideas on just how many acres were unseeded in Saskatchewan will start to become available within the next few weeks, but the patchy flooded-out areas in fields across the rest of the Prairies will be harder to put a number on.
In talking with a few farmers recently who actually have crops in the ground, the general consensus seemed to be one of cautious optimism – at least as far as prices are concerned. However, with many producers now the proud owners of lakefront property, there is definitely enough pessimism to go around as well. That pessimism is likely to become even more prevalent in the weeks ahead.
Among the marketers and analysts who try their best to predict where things are headed, the general consensus seemed to be one of uncertainty, which doesn’t provide a lot to work with. While I’ve heard some rumblings from farmers about holding out for $12-per-bushel canola, prices could be hitting their top end for the time being until everyone gets a better sense of the situation. As a result, those uncertain marketers and analysts generally recommend pricing on a scale-up basis to lock in profits as they become available.
– Phil Franz-Warkentin and Amanda Lefley write for Resource News International (RNI), a
Winnipeg company specializing in grain and commodity market reporting.