Continued worries over tight old-crop supplies, along with the reluctance of farmers to deliver canola to the country elevator at current cash bids, helped to generate much of the upward price action seen in canola on the ICE Futures Canada trading platform during the week ended April 12.
Exporters and domestic processors were the noted buyers of canola. Some of the strength was also associated with the price advances seen in CBOT (Chicago Board of Trade) soybeans. The possibility of delays in seeding canola in Western Canada due to excessively wet soil conditions and below-average temperatures also provided some incentive for canola futures to move up.
The potential for seeding delays, however, is being taken with a tongue-in-cheek attitude among some market participants. They feel that while flooding is a strong possibility in a number of regions, a week of above-normal temperatures and no precipitation will easily put farmers back on their planting schedule.
The upside in canola was restricted in part by some strengthening of the Canadian dollar, which made its way almost back to the US99-cent level at one point during the reporting period. A strong currency reduces the buying power of importing countries.
A deterioration in old-crop crush margins resulted in processors backing away from canola during the week. The decline in this demand has been in the making for a long time, but while some reduced their requirements, others continue to seek out canola, with cash bids still in the C$14-per-bushel range. New-crop canola bids from processors were said to be in the $12.50-plus area.
Some caution was expected to surface in canola activity ahead of Statistics Canada’s April 24 seeding intentions report. Early pre-report expectations are that canola area will be down from last year’s level, but production was likely to be up as long as there is no repeat of the drought-like conditions that hurt yield potential last season.
Open interest in milling wheat, durum and barley contracts on the ICE platform has essentially fallen by the wayside. ICE continues to arbitrarily adjust values, as evidenced in barley during the week, but unless some commercials start putting some effort in trading these commodities and building up some liquidity, one has to believe the existence of the contracts is limited.
CBOT soybean futures experienced an upward recovery in values during the week, with old-crop values in particular posting some significant advances. A lot of that strength was associated with steady demand from the export and domestic sectors for old-crop stocks.
Much like farmers on the Prairies, U.S. growers have turned off the taps in terms of moving soybeans into the cash elevator system. This in turn has resulted in some strengthening of the cash market. There were reports that cash merchants, depending on the area in the U.S., were paying 60 cents a bushel above the current May CBOT soybean future.
Decisions by U.S. farmers to stop delivering were associated in part with this week’s supply/demand update from the U.S. Department of Agriculture, which projected domestic U.S. soybean inventories as of Aug. 31, the end of the current marketing year, at 125 million bushels. This would be the lowest level since 2004.
The upside in deferred soybean futures was more muted. Gains were tempered by indications during the week that wet conditions and cold temperatures could delay the planting of the U.S. corn crop this spring. With the delays come ideas that more U.S. farmers will plant soybeans instead.
USDA’s report, meanwhile, also stifled some of the price strength by raising world soybean stockpiles. It pegged global soybean supplies at the end of the crop year at 62.63 million tonnes. USDA increased its estimate largely due to higher production in countries such as Paraguay and Uruguay which have had favourable weather. USDA, however, left its soybean production in Brazil at a record 83.5 million tonnes.
Corn futures on the CBOT finally broke to the upside during the week, with tight supply concerns and the potential for reduced acreage stimulating price advances.
USDA’s report pegged world corn stocks at 125.3 million tonnes. The estimate was increased as USDA reduced demand for corn in animal feed in the U.S., as well as in China and Mexico.
As for the U.S. corn stockpile, USDA projected U.S. corn supplies prior to the fall harvest will total 757 million bushels, roughly 20 per cent higher than the estimate made a month ago. Market participants, however, noted that even if corn supplies are higher than what they were a month ago, supplies remain at historically tight levels after the country’s worst drought in decades ravaged crops in the U.S. Midwest last year.
Wheat futures on the CBOT, MGEX and KCBT experienced some movement to the upside during the week. Freezing nighttime temperatures in the southern U.S. Plains during the week fuelled concerns about damage to the region’s struggling crops. Market participants were worried about another bout of freezing temperatures hitting the area over the next week or two. Many hard red winter wheat crops in this region already are in poor condition due to persistent drought.
Unfavourable weather has also raised concerns about seeding delays for spring wheat in the upper U.S. Midwest in coming weeks. Weather outlooks for states such as North Dakota and Minnesota are cold and wet.