Canola futures on the ICE Futures Canada trading platform experienced a setback during the week ended Feb. 11 as the taking of profits and overbought market conditions encouraged selling.
The price setback seen in Chicago Board of Trade (CBOT) soybean and soyoil futures also sparked some of the downward price action seen in canola.
Support in canola continued to come from relatively strong domestic processor demand and from the covering of routine export business to Japan. The losses in the deferred canola contracts were not as great, as the industry tries to keep values up in order to prevent producers from switching out of canola and planting alternative crops such as wheat this spring.
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The October 2011 western barley contract actually saw some trade this week, with commercials also trying to entice producers to seed some area to the crop this spring.
CBOT soybean futures suffered declines, given news that cheaper South American supplies were ready to start making their way on to the world market. China was said to have cancelled some old-crop U.S. soybean purchases in favour of the soybeans coming out of Brazil.
Profit-taking and sentiment that CBOT soybeans were due for a downward correction also influenced some of the price weakness. The declines in new-crop soybeans were limited by the need to entice producers in the U.S. to plant the crop instead of corn and cotton.
Corn values at the CBOT posted modest gains during the week, with the tightening of the supply/demand balance sheet by the U.S. Department of Agriculture encouraging the upward price action. Stronger-than-anticipated demand from the export and ethanol sectors also influenced the friendly price atmosphere in corn. Adding to the strength was the need to attract corn area in the spring and news that as much as 4.2 million tonnes of Mexico’s corn crop has been damaged by a freeze.
Wheat futures at the CBOT were higher with the advances associated with ongoing tight high-quality wheat stocks and the uncertainty surrounding new-crop wheat output. Those concerns were tied to reports of drought in China’s wheat-growing areas and the extremely wet conditions in Australia. Forecasts calling for a wet spring in Western Canada were also seen impacting wheat output from the Canadian Prairies.
The USDA reduced its U.S. corn supply to its tightest level in 15 years on Feb. 9 with record ethanol production raising concerns about whether U.S. farmers can keep pace with global demand for the commodity.
The USDA lowered its projection of how much U.S. corn would be left at the end of August to 675 million bushels, a level which is considered the bare minimum.
The USDA’s forecast put corn supplies as a percentage of usage at five per cent. That is the ratio of supplies at the end of the crop year against how much corn would be used in a year.
The number is watched closely because it is the clearest indication of how much of a buffer exists to insulate the industry against temporary shortages.
The concern is that if the ratio drops below five per cent, buyers may not be able to secure supplies when required.
THIRSTY FOR ETHANOL
Rising demand from the ethanol sector was blamed for the U.S. corn supply situation being so critical.
Production of ethanol in the U.S. continues to push ahead at record levels. The USDA in its Feb. 9 report suggested that a record 4.95 billion bushels of corn will go to the ethanol sector in the current crop year, representing 40 per cent of the corn that was harvested in the U.S.
Escalating global demand, general weakness in the U.S. dollar and record domestic production are giving U.S. ethanol makers an edge.
Ethanol output in the U.S. has increased significantly during the past decade, mainly due to U.S. government policies that were designed to remove the U.S. reliance on foreign oil imports and to become more self-sufficient through the use of biofuels.
Currently, the U.S. government calls for a 15 per cent blend of ethanol in fuel for cars, which is up from 10 per cent just a month or so ago. The U.S. Congress also recently extended a 45-cent tax credit gasoline producers get for every gallon of ethanol they blend into fuel.
There are ideas that in order to finally start to ration the demand for U.S. corn, values at the CBOT may have to move above US$8 a bushel. These levels haven’t been seen since 2008 when supplies of U.S. corn again hit critically low levels.
Adding to the intrigue in the market is that the tight U.S. corn stocks leave very little room for any weather impact on new-crop yield potential.
This means any planting delays, or any weather feature that suggests below-average yields for corn, will easily boost prices to those highs.
Meanwhile, the USDA left its U.S. soybean supply projection unchanged at 140 million bushels while U.S. wheat stocks at 810 million bushels were also unchanged from the previous projection.
Dwayne Klassen and Phil Franz-Warkentin