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 Aug. 21 mixed with canola down modestly as the firm Canadian dollar, weak soyoil prices and bearish technical signals sent the market sharply lower. News of the smaller canola crop, slow farmer selling, gains in crude oil and the lingering frost threat gave support, pulling the market back to just small losses by the end of the week. Trade was subdued, with routine commercial and speculative activity noted. Western barley was a bit higher on the week with small losses in U. S. corn and sluggish end-user demand, as feedlots have been buying feed alternatives including U. S. distillers dried grains (DDG), which limited interest in the market. Farmers weren’t selling, though, and that lifted prices modestly.
Chicago corn and soybean futures declined modestly during the week, mainly on the favourable weather for the crops. Talk of record production for both corn and soybeans continued and that pressured the market down. Technical signals turned bearish and that contributed to the price slide.
However, giving strong support was exceptional export demand for both corn and soybeans this week. Concern that the crop is vulnerable to a frost, as development lags, also helped to underpin prices.
U. S. wheat futures dropped moderately on the favourable growing conditions for the U. S. spring wheat crop and the ample global wheat supply. Bearish technical signals added to the decline, as did a move by the U. S. government to limit speculative activity. At its lows, the wheat market did start to attract in export demand and that stopped the slide.
STATSCAN SEES RISKS AHEAD
Statistics Canada brought out its first look at the 2009 crop and it showed a much smaller crop than 2008 and a crop that is still at risk from weather factors as it is highly variable and well behind normal development. Lower acres and a drop from last year’s above-average yields accounted for some of the lower production. However, crop production outlooks from StatsCan later in the year generally see the numbers being revised higher.
Everyone’s eyes were on the canola numbers in this report and it confirmed that the crop is to be considerably smaller than last year’s, despite acreage not seeing a big decline. Production was forecast at 9.54 million tonnes, down from last year’s record 12.64 million tonnes and at the low end of trade forecasts.
The smaller crop means there will be considerable competition between exporters and the crushers for canola supplies. Both exports and the crush will shrink from last year’s 12.4 million tonnes, simply because of the lack of supply. Early indications were that Canada would consume about 11.4 million to 11.7 million tonnes of canola in 2009-10. This will now likely fall to 11 million to 11.2 million tonnes.
We are already seeing aggressive competition between crushers and exporters for canola, with basis levels from crushers in
Alberta at $10 per tonne over futures prices, if you deliver now and you have till the end of the year to price. Some exporters have matched the crusher offers.
Canola prices will maintain a good premium to the U. S. soy market. As noted last week, that market outlook is fairly strong, so canola values this winter are likely to be quite strong as well. Be aware, though, that in this kind of market the highest prices come early in the winter.
Another interesting number was barley, which StatsCan pegged at 8.948 million tonnes, at the low end of trade guesses and well below last year’s 11.78 million tonnes. The number is considered quite friendly to the market, but will be partially offset by the large amount of competing feed grains and U. S. DDG imports.
With barley usage likely to be in the nine-million-to 9.3-million-tonne area, we are going to see ending stocks drop to very tight levels, which, normally, would be strong support for barley, with prices surging above the $5-per-bushel level in Alberta and $4/bu. in Manitoba. However, with the competing feed products, the market is likely to remain depressed with values rising no higher than $4/bu. this winter in Alberta and $3/bu. in Manitoba.
This also suggests that the domestic market, not the export market, will give the best barley prices. The exception will be malting barley. It does look like we should see maltsters stepping to the plate with bids a bit better, to make sure they have adequate product.
The StatsCan wheat number, at 23.61 million tonnes, was about what the trade expected, but was well below last year’s 28.6 million tonnes. Given that demand will absorb all of that supply there will be no problem with moving the crop, unless it is of low quality. There is a large supply of lower-quality wheat in the world. It does look like all wheat prices will be down from 2008-09, with the lower-quality levels particularly poor.
If you have low-quality wheat available, the best prices will likely come from ethanol plants across Western Canada. I have heard of those plants paying between $4.50 and $4.75 per bushel for wheat lately.
The oats production number of 2.96 million tonnes was at the low end of trade guesses and well below last year’s 4.27 million tonnes. This is a friendly number, as consumption is expected to be around 3.2 million to 3.5 million tonnes, which will bring ending stocks below the million-tonne level, which will support prices.
However, with the U. S. feed market glutted by a large U. S. corn crop and DDG, the price outlook is poor and it will be a struggle for oats to hit $3/bu. in Manitoba.
StatsCan estimated the 2009 flax crop at 915,000 tonnes, a bit above trade expectations and up from last year’s 861,100-tonne crop. This would be above total usage of about 800,000 and would add to ending stocks. The result will be higher ending stocks. Normally, this would mean weaker prices. Currently flax cash is trading in the $10-$11/bu. area and is at a premium to canola. I would expect canola to move to a premium to flax, with flax holding in the $10/bu. area.
The pea production forecast of 3.11 million tonnes was at the high end of trade forecasts, but still down from last year’s 3.57 million tonnes. Demand has been exceptional for peas and ending stocks will likely move into quite tight levels and prices will be firm. Current values should be the low for the market, with higher prices coming, particularly for edible peas. Feed peas will struggle to go much higher because of the large competing feed supply.
– 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.