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 May 22 mixed, with canola mixed and barley higher. Canola was pressured down in the old crop by a slowing pace to demand, with both exporters and crushers as lighter buyers. The major negative factor in the market, though, was the very strong Canadian dollar, which surged to seven-month highs against the U. S. dollar. Supporting the new crop were the planting delays for canola and strong exporter and crusher pricing in the new crop. Underpinning the entire canola market was a strong advance in the Chicago soy complex, the falling ending stocks level for canola and steady speculative buying.
Exporters, crushers and commodity funds were buyers, with the selling coming
from commercials. Commodity funds are estimated to have bought 25,000 to 30,000 contracts since the July contract passed the $420 level. Their buying is mainly in July futures, although there is some buying in the November contract. Farmer selling increased as planting has ended in some areas, mainly in Alberta and western Saskatchewan. Nervous speculators were also taking profits by the end of the week.
Western barley ended the week higher. Barley was supported by the gains in U. S. corn futures, but the market is still being plagued by low volumes, which accounts for its large price movements up and down. Commercials are the main traders in this market.
Chicago corn and soybean futures rallied during the week with the new crop gaining more than the old crop. The plunge in the U. S. dollar, as the record U. S. debt and the unrestricted printing of money drove the greenback lower, gave support to prices.
Soybeans were supported by the continued tightness of old-crop soybean supplies and buying by China. The new crop was supported by the delays in planting the U. S. soybean crop. Technically based buying was also evident in the trade. Corn futures advanced as export demand remained strong and the market drew some support from the gains in crude oil. The continued delays in corn planting in the eastern corn belt also boosted the market. Trade was comprised of both commercials and speculators and farmers were fairly good sellers of both corn and soybeans as prices rose. Weighing on the corn market, and keeping the gains small, was uncertainty about the U. S. government’s support for ethanol production.
U. S. wheat futures surged on problems in the U. S. wheat crop. Lower yields coming in for the harvested crops in Texas and Oklahoma, disease in some of the winter wheat acreage and continued delays in planting the spring wheat crop boosted the markets. In addition, speculators, in the form of commodity funds, turned aggressive buyers in all three wheat pits in the U. S.
All markets are turning increasingly bullish, as I noted last week, but the oilseed markets are attracting the greatest interest. Globally, we’re seeing a significant rally
in palm oil prices, which is significant for the canola market, as canola reacts to vegetable oil prices. The surge in crude oil prices is also supportive, as there is rising demand in the world for rapeseed/ canola for biodiesel.
The U. S. soybean market is increasingly bullish and the U. S. Department of Agriculture’s May 12 supply/ demand report is already inaccurate. At that time, USDA forecast U. S. 2008-09 soybean ending stocks at 130 million bushels. Now most analysts are at or below 100 million bushels, which would only be 10 days of supply. On top of that, the arrival of new-crop soybeans is being pushed back by the poor weather that’s delaying planting.
This will make for a volatile but generally strong old-crop soybean market through the summer, which will spill in to support the canola market. I now expect old-crop soybean prices to swing between $10 and $12 per bushel. The Chinese demand that has eaten up the supply is continuing despite higher prices.
There are those who feel China’s buying is part of a plan by China to reduce the amount of U. S. dollars it is holding by turning them into a commodity that will not lose value.
New-crop soybeans will be supported by lower U. S. ending stocks. In its May 12 report, USDA pegged U. S. 2009-10 soybean ending stocks at 230 million bushels. However, the lower 2008-09 ending stocks forecast will reduce the 2009-10 level to below 200 million bushels, despite higher production. The later the soybean crop gets planted, after May 20, the lower the yields. It looks like new-crop beans will remain above the $9.50 level and could climb to the $12/ bu. level depending on the size of the crop.
This is an incredibly bullish backdrop to canola, which has its own bullish numbers. At the beginning of the 2008-09 crop year, the record canola crop of 12.64 million tonnes was expected to depress the market as ending stocks would likely be close to the three-million-tonne level.
However, the market didn’t anticipate China’s appetite for canola and North American demand for canola oil, which resulted in record exports and record crushing in Canada. As a result, 2008-09 canola ending stocks will be a very reasonable 1.5 million tonnes. That accounted for prices rising to near the $11/bu. level this past week. This will keep the old crop supported, although I am still looking for some weakening once the crop is seeded.
For the new crop, production is likely to be 10.5 million to 11 million tonnes as farmers seed more canola than they indicated to Statistics Canada in March. However, consumption will be strong for canola. The two new crushers in Yorkton, Sask. will need almost 1.75 million tonnes of canola to crush at full capacity. The crush in 2009-10 is expected to climb to a record 5.5 million to 5.8 million tonnes.
Exports will need to fall, as we will not have enough canola to meet demand. Exports will likely drop to six million to 6.5 million tonnes. This will put 2009-10 canola ending stocks below one million tonnes and keep the market well supported in 2009-10, with cash prices around the $10/bu. level, with peaks hitting as high as $12/bu.
The spoiler for the canola market will be the Canadian dollar, which looks like it wants to trade above the US90-cent level, with some thinking it could hit parity if the Americans don’t find a way to curb their debt and support their currency. Regardless, it will be a strong year for canola and any weather problems will send the markets sharply higher, likely into the teens for both soybeans and canola.
– 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.