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Canola Hits Eight-Month High, Supplies Tighten

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 8 higher, with old-crop canola rising to its highest level in eight months. Export demand, friendly technical signals and speculative buying all combined to boost the market.

During the week it was revealed that China will take about 2.5 million tonnes of canola. Some feel it may even reach three million tonnes by the end of the 2008-09 crop year. Commodity funds, which had turned buyers several weeks back on bullish technical signals, continued to add to their winning speculative position. Gains in the Chicago soy complex contributed to the advance. Farmer selling slowed, despite cash bids topping $10 per bushel in much of Western Canada. Farmers are focused now on seeding and it will probably take $11/bu.

canola to get them delivering again. The rally came despite a push to six-month highs in the Canadian dollar.

Western barley continued in its uptrend from its lows in early April. The advances in the U. S. corn market and slow farmer selling gave some support.

U. S. MARKETS

Chicago Board of Trade (CBOT) soybean and corn markets posted strong gains, with old-crop soybeans hitting eight-month highs. Soybeans were supported by the tightening global and U. S. supplies as China continues to be a strong buyer and the Argentine soybean crop was revised even lower. The new crop followed the old crop higher, but did not see gains quite as large, as corn-planting delays are causing the trade to expect soybean acres to be higher. Corn futures rallied on the planting delays due to wet conditions and the strength of crude oil prices. Slowing the rally was heavy farmer selling once the market rose above the US$4/bu. level.

U. S. wheat futures advanced with Minneapolis spring wheat futures touching $7/bu. as spring wheat-seeding delays and tightening global supply gave support. Kansas City wheat was higher on reports that the U. S. winter wheat crop was smaller than expected. That news also supported the Chicago wheat market.

The well-respected Informa Economics has forecast that the U. S. winter wheat crop would be 1.535 billion bushels, down 333 million from last year’s crop, due mainly to lower acres and weather problems. With some developing global wheat production problems and a warning from the Australian Meteorological Bureau that an El Nino may be developing, wheat markets were well supported.

STATSCAN ON SUPPLIES

Statistics Canada brought out its March 31 grain stocks report on May 8. For wheat, StatsCan said that all Canadian wheat stocks on March 31 were 15.536 million tonnes, well above last year’s 11.458 million but below trade forecasts. Exports, running about 1.5 million tonnes ahead of last year, accounted for only a small part of the aggressive use pace. It was the use of wheat as feed, at 4.009 million tonnes, almost twice last year’s level, that

accounted for wheat stocks coming in so low despite the large 2008 crop. This suggests that total wheat 2008-09 ending stocks will be quite tight, likely in the five-million-to 5.5-million-tonne area.

With global wheat supplies tightening, the smaller U. S. wheat crop noted by Informa and Canadian supplies tight, the price outlook for the coming 2009-10 crop year is quite good.

The report pegged March 31 durum supplies at 3.755 million tonnes, up from last year’s 2.021 million. The large 2008 production accounted for the increase and ending stocks will be high likely in the 2.5-million-tonne area. Durum prices are dictated by the international market and right now they do look poor.

StatsCan forecast March 31 barley supplies at 6.054 million tonnes, up from 4.46 million at the same time last year. The large production and smaller exports accounted for the high level of supplies. Domestic use was up from last year as Canada did not rely on imported U. S. corn. However, feed wheat still reduced the amount of barley being used as feed, as did the smaller animal numbers.

This report suggests that barley ending stocks will be high, in the 2.4-million-to 2.6-million-tonne area, and that barley prices will be depressed until the market eats through the supply. The market should still be supported by the strength in U. S. corn; I am still looking for a return to the $4/ bu. level next winter in Alberta and we will see the $3 to $3.50 level in Manitoba.

For oats, StatsCan reports that March 31 supplies were 2.547 million tonnes, up from last year’s 2.328 million tonnes. The increase reflected slower exports and reduced domestic use. It also suggests that ending stocks of oats will be quite high, at the 1.2-million-to 1.4-million-tonne level. This continues to suggest depressed oats markets and may further encourage a shift out of oats acres. Right now it looks like oats prices will range in the $1.50 to $2.50/bu. area.

However, if oats acres fall as a result of this report and the current dismal prices, we could see a bounce in this market.

StatsCan pegged March 31 canola stocks at 5.852 million tonnes, up from last year’s 4.577 million. Higher production accounted for the increase. However, both exports and domestic use are outpacing last year, with total consumption to March 31 being 8.38 million tonnes, up from 6.86 million tonnes at the same time last year. If this pace continues, we will see canola 2008-09 ending stocks down to the 2.3-million-to 2.5-million-tonne area, which is not nearly as burdensome as some of the early predictions of ending stocks hitting three million tonnes.

For price, the report suggests that supply is not burdensome and that once the crop is in and weather is not threatening, we are likely to see summer lows in the $9/bu. area before the market starts a rally which will take it close to the $11-to $12/bu. area, depending on the situation for U. S. soybeans.

For flax, the report was neutral with 2008-09 ending stocks about what traders expect and the price outlook firm but not bullish.

PEAS AND LENTILS

Two interesting numbers, though, appeared in the report. Pea supplies are pegged at 1.675 million tonnes, up from 870,000 tonnes at the same time last year. The large production and a slight drop in consumption accounted for the increase. The report also suggests poor prices for 2009-10.

Lentils were just the opposite, as March 31 supplies came in at 197,000 tonnes, down from 330,000 tonnes at the same time last year. The decline came despite a big increase in crop production, as higher exports and domestic use more than offset the increase. This suggests that lentil prices should be quite 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.

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