Canola contracts weaken on Chicago soybean sell-off

Canola contracts on the ICE Futures Canada platform experienced some significant losses during the week ended May 11. The sharp sell-off in the CBOT (Chicago Board of Trade) soybean complex helped to encourage the downward price slide, as did renewed macroeconomic issues, which triggered some aggressive liquidation of long positions by speculative fund accounts. The triggering of sell-stop orders, on the way lower, further exaggerated the price weakness in canola.

An improvement in the weather, allowing producers an opportunity to seed record area to canola this spring in Western Canada, also contributed to the bearish price atmosphere.

Scale-down demand from commercials helped to slow the drop in canola, with most of that interest said to be covering old export business and some minor domestic processor requirements. A slowdown in farmer selling, as producers concentrate on spring field work, further tempered the price declines.

The grain stocks in all positions report, released by Statistics Canada on May 7, also provided some minor support. The government agency pegged canola supplies in Canada on March 31 at 4.273 million tonnes. Pre‑report expectations had been calling for a stocks total of 4.2 million to 4.8 million. Canola stocks at the same time a year ago were 6.157 million tonnes.

A reduction in U.S. and global soybean supplies in the U.S. Department of Agriculture’s report on May 10 helped to restrict the price declines seen in canola.

There was some arbitrary price movement seen in milling wheat and durum contracts on the ICE Futures Canada platform. However, the new barley contracts experienced some small, but noticeable volume totals during the week. Most of the action was conducted between commercials.

CBOT soybean futures posted some significant declines during the reporting period with macroeconomic issues and the resulting liquidation of long positions by commodity fund accounts the key downward influence. The activation of sell-stop orders on the way down, amplified the price weakness. Soybeans had been sitting at their highest level in four years last week.

Favourable weather for the planting and development of the U.S. soybean crop contributed to the bearish sentiment in the commodity.

USDA pegged soybean planting intentions in the U.S. at 73.9 million acres in its supply/demand reports released on May 10. There are widespread ideas that final U.S. soybean acres will be higher, possibly considerably higher.

The losses in soybeans were offset by the tighter-than-expected U.S. soybean ending stocks projection for both old and new crop. USDA estimated U.S. soybean stocks as of Aug. 31 were likely to drop to 210 million bushels, which compares with the 250 million projected a month ago and down 2.3 per cent from the year-earlier forecast. USDA’s ending‑stocks forecast for the end of the next marketing year is even lower, at 145 million bushels.

CBOT corn futures were down on the week, with losses associated with USDA’s unexpected jump in near-term corn supplies and the projected record corn harvest this autumn.

In the monthly supply‑and‑demand report, USDA pegged U.S. corn inventories as of Aug. 31, the end of the current marketing year, at 851 million bushels, up 6.2 per cent from the agency’s previous forecast of 801 million bushels. The rise was due to USDA cutting its forecast for corn demand in the “feed and residual” category.

U.S. corn production, meanwhile, was expected to rise this year to a record of 14.79 billion bushels, from 12.358 billion bushels last year, as a fast start to the planting season could boost yields to a record 166 bushels an acre, USDA said. A harvest of that size would shatter the old record of 13.092 billion bushels set in 2009.

Wheat futures at the CBOT, KCBT and MGEX were lower on the week. The active seeding pace of the U.S. spring wheat crop helped to fuel the price declines, as did the favourable weather and quick development of the U.S. winter wheat crop. The losses in corn and the more-than-adequate global supply of wheat also were undermining price influences.

Other than the canola projection in the stocks report coming in tighter than anticipated, there were few other Canadian numbers that held any major surprises. Durum stocks at 3.002 million tonnes were on the high side and, with anticipated large acreage this spring, could limit the upside potential in prices.

The all-wheat stocks number of 14.479 million tonnes was at the lower end of expectations and suggests usage of the commodity as a feed was greater than what had been anticipated.

Other than that, there were few surprises in the stocks figures. However, the big question being asked is whether the uptrend in the oilseed sector is over, or whether this can be viewed as a necessary but temporary setback.

Analysts were certainly scratching their heads on that thought after the price action seen on May 11 in both the U.S. and Canadian markets.

Normally, when there is such a huge price swing on a Friday, the Monday or next business day sees a correction in price direction.

Some market participants were also unsure of what exactly caused the sell-off, noting that if there was a true sell-off because of global economic worries, crude oil and the equity sector would have suffered greater losses than what those markets did.

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