Canola Futures Recovering On Fresh Chinese Demand

Dwayne Klassen CNSA

Canola futures on the ICE Futures Canada trading platform managed a rally during the week ended Oct. 14, recovering some of the losses experienced in the previous reporting periods. Confirmation of fresh Chinese demand for Canadian canola helped to generate some of the price strength, as did the reluctance of Prairie producers to deliver canola into the country elevator system.

The upturn in soybean futures at the Chicago Board of Trade (CBOT) during the week helped to buoy canola values. A lot of the volume experienced by canola during the week reflected the rolling of positions out of the nearby November future, ahead of it becoming a cash delivery month, and into the January contract by commodity fund accounts.

The upside in canola was restricted by the strengthening in the value of the Canadian dollar, with the currency again making a push toward parity with the U.S. unit.

Western barley futures on the ICE Futures Canada platform were dormant during the week, although the values for barley were arbitrarily raised by the exchange to keep pace with outside influences.

Feed barley cash bids, meanwhile, firmed right across Western Canada, given the tighter supply outlook. The need of Alberta outlets to head into Saskatchewan to gather feed barley supplies helped to strengthen the cash bids.

CBOT soybean futures posted some significant advances during the week ended Oct. 14, with smaller-than-anticipated production estimates in the U.S. Department of Agriculture s latest report and the surfacing of some fresh export demand behind much of the upward price momentum.

The triggering of buy-stop orders and the buying back of previously sold positions also contributed to the advances. Sentiment that U.S. soybeans were undervalued in comparison to the other oilseed markets also stimulated some strength.

CBOT corn futures also experienced some good gains. Reports that China was a significant buyer of U.S. corn helped to influence the upward price action, with the downturn in the value of the U.S. dollar also contributing to the gains. Higher-than-expected production of U.S. corn, as reflected in the USDA report, restricted the price strength.

Wheat futures at the CBOT and Kansas City exchange were able to climb higher during the reporting period, while spring wheat values at the Minneapolis exchange suffered some weakness. Much of the support seen at the CBOT and KCBT came from drought concerns in the southern growing regions of the U.S. and spillover from the advances seen in CBOT corn values. A pickup in demand from the feed sector for wheat also influenced some of the gains.

The upside in wheat was tempered by the USDA report, which showed more than adequate supplies of wheat, both in the U.S. and on the world market, to satisfy any demand that may surface.

There s no doubt that canola futures on the ICE Futures Canada trading platform are a long way off from reaching some early hopes of C$700 per tonne. In fact, a number of market participants indicate that the long-term price trajectory for the commodity is pointing to the downside.

Part of the downward price outlook includes the following sentiments.

It s been suggested to be very unlikely that there will be three years in a row in which five million to six million acres of prime farmland on the Canadian Prairies will go unseeded due to flooding next spring. That is expected to lead to unprecedented area being planted to canola.

There are also concerns that corn production in the U.S. will also resume more normal levels, with yields in the U.S. also unlikely to be 10 to 15 bushels below normal, as they have been over the past three years.

The size of the U.S. wheat crop is also seen climbing significantly, especially with crop insurance rates of US$8.20 a bushel for soft red winter wheat and around US$8.60 a bushel for hard red winter wheat varieties.

Soybean production in South America also is expected to come in at another record-large level. Australia s wheat output was also seen hitting more normal levels, adding to the ample supply situation in place.

However, a possible saving grace in terms of lower prices, if one can call it that, is the drought which has been plaguing the southern U.S. There are ideas that this system will begin to head north and be in time to impact the Canadian Prairie growing season next spring.

A lot of Manitoba producers have been carving drainage into their fields in preparation ahead of what they anticipate to be another wet spring. However, some farmers have been thinking twice about that idea and are considering the odds that if this dryness does head toward the Prairies, the fields will need all the moisture they can get their hands on.

The drought would certainly reverse the downside price thinking.

Canada, a Winnipeg company specializing in grain and commodity market reporting.

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For three-times-daily market reports from Commodity News Service Canada, visit ICE Futures Canada updates at www.manitobacooperator.ca.

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