DON BOUSQUET It’s Your Business
For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oilseed futures at ICE Futures Canada in Winnipeg closed the week ended Jan. 9 mixed. Canola rallied to two-month highs; strength in the Chicago soy complex, export demand as China and Pakistan took canola, and disciplined farmer selling boosted the market. The gains came despite heavier farmer selling as prices climbed above $9/bu. Commodity funds also started to buy back their futures contracts and that contributed to the gains. Western barley futures moved mostly lower in light trade. Ideas that demand is covered into February weighed on the market. The small amounts of farmer selling in the small volumes also pressured the barley market. Weakness in U. S. corn also undermined barley.
Chicago soybean and corn futures ended the week mixed as soybeans posted an impressive rally and corn edged fractionally lower. Soybeans were lifted to three-month highs by concerns about dryness affecting the Brazilian and Argentine soybean crops. Strong demand, notably from China, and bullish technical signals contributed to the strong upward surge in soybeans as futures topped $10/bu. Farmer selling did increase as the rally advanced. U. S. corn futures posted small losses. The rally in soybeans, friendly technical signals and dryness problems for the Argentine corn crop gave support, but those influences were offset by the sluggish demand from both the export and domestic markets. Farmer selling also accelerated as the market held above US$4/bu.
U. S. wheat futures markets advanced with the gains in corn and soybeans giving some support. Concerns about winterkill in the U. S., Russian and Ukrainian winter wheat crops also supported values. Ideas that the U. S. Department of Agriculture (USDA) report on Jan. 12 would show lower U. S. winter wheat acres helped to boost prices. However, the sluggish export pace for U. S. wheat and the fact that Russia was still aggressively selling its wheat in the international market slowed the advance.
Return of the funds
An interesting fact across both the Canadian and U. S. markets this past week has been the buying by commodity funds. In Winnipeg, those funds are buying back their futures contracts, trying to hold on to fairly large profits they have in the market. In the U. S., the return of stability to the financial situation and the big rally in grain and soybeans that have turned charts friendly have caused funds to come back to the market. It will be interesting to see if their bet that the grain markets have started a longer-term rally proves correct. The trade is skeptical about the current rally.
The canola cash market hit the significant $10/bu. level in both the old crop and the new crop this past week and attracted heavy amounts of farmer selling in the old crop and pricing in the new crop. This has surprised everyone as the large carry-over of canola, estimated at a record three million tonnes, was felt to be a bearish factor that would keep canola prices below the $9/bu. level with some looking for a return of canola prices to the $7/bu. level.
The standard explanation for the canola price rally is that farmers have been tight holders of canola and that is forcing buyers to bid the market up. However, there is a flaw in this logic. Tight farmer holding only works to boost prices if there is strong demand. Demand continues to move at a record pace in both the domestic crush market and in exports. In addition, there is concern about the level of canola production we will see in 2009.
It is interesting that newcrop (November 2009) canola futures are at a premium to the old-crop July futures. New-crop cash bids are also running about a 50-cent to $1/bu. premium to the old crop. This certainly suggests that the trade wants to maintain strong planting of canola this spring.
There is still expectation that demand in 2009-10 will be a record 11.5 million to 12 million tonnes and that means we have to keep canola acres up. The companies have been counting on $10/ bu. new-crop bids to get the acres they want and so far it looks like it is happening. The current drop in input costs has resulted in many producers able to make a reasonable profit at $9.50-$9.75 per bushel.
Also, what makes canola more attractive, despite the high-cost risk, is the fact that competing crops have dropped sharply.
Pulse and specialty crops have lost much of their lustre as the market has been hard hit by the global credit tightening and the news of broken contracts. Actually the problems for pulses and specialty crops are expected to show up at Crop Production Week in Saskatoon this week.
Traditionally, new-crop pulse and specialty crop prices are unveiled at the meeting. However, sources tell us there will be few new-crop bids unveiled because of all the uncertainty surrounding the sector. They say the newcrop prices that are unveiled will be very poor.
It is starting to look like canola will be one of the more profitable crops to grow in 2009-10 once again, even with a record-large ending stocks level.
USDA brought out its latest production and supply-demand reports on Monday and they suggest grain and oilseed supplies in the short term are certainly building, but the long-term outlook is still more positive.
For soybeans, USDA pegged U. S. 2008-09 soybean ending stocks at 225 million bushels, well above trade forecasts and up from December’s 205 million bushels. However, global soybean ending stocks were lowered and this will underpin the oilseed markets. Higher U. S. production accounted for the U. S. increase. This will weigh on canola in the short term.
For corn, USDA estimated 2008-09 ending stocks at 1.79 billion bushels, up from the December estimate of 1.474 billion bushels. A small drop in production was unable to offset the drop in consumption as lower ethanol use, livestock feeding and exports accounted for the 21 per cent increase in ending stocks.
This will weigh on corn and barley, but will partially be offset by the need for large U. S. corn acres in 2009-10.
U. S. 2008-09 wheat carryover came in at 655 million bushels, up from 623 million in the December report. Lower U. S. domestic use accounted for the increase. However, the big news for wheat was the huge drop in U. S. winter wheat acres to 42.098 million from last year’s 46.181 million. Traders had expected acres to be down two million. This confirms my view that the longer-term wheat outlook is strong.
– 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.