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. 23 mixed, with canola pressured down by increased farmer selling, a firmer Canadian dollar and weakness in the Chicago soy complex. There was only routine demand for canola in the export market. Crusher demand remained strong. Preparations for the celebration of the Lunar New Year in Asia slowed demand from that area. Western barley futures were little changed, with sluggish demand offset by slow farmer selling. There was little fresh news to drive this market.
Chi cago soybean and corn futures posted losses during the week as the U. S. dollar rallied and the market seemed to run out of steam on the buying side. However, continued strong demand out of China and the weather-related problems in the South American soybean crop kept soybean prices above the $10-per-bushel level. Corn futures losses were fractional as rising export demand and the problems in the South American corn crop gave support. Farmer selling was also slow. As a result corn futures held close to the $4/ bu. level.
U. S. wheat futures saw small gains on the week as the slow export pace was offset by signs that Black Sea wheat was finally being exhausted. Russian wheat prices rose during the week, resulting in Egypt buying more U. S. wheat than it has in the past. Problems with Argentine wheat supplies and the fact that the Argentine government would not issue export permits for wheat helped to lift prices.
While canola looks like it will remain profitable in 2009-10, some forward pricing is strongly suggested when forward bids get to the $10/bu. level as they have in recent weeks. At farm meetings in the past month or so across the Prairies, I have noticed that more farmers have been pricing their canola at the $10/bu. level and the market has also made note of it. Last fall, farmers were adamant that they would not price new crop at $10/bu.
The premium of new-crop November canola futures to the old-crop July futures has been eroding as farmers book more and more of the new crop. November futures are still holding a small premium as the market is still concerned about 2009 canola acres, but more and more of the grain trade feel that farmers will grow canola in 2009 as the prices of inputs come down.
Coming out of the current 2008-09 crop year in July, the amount of canola ending stocks will not be as burdensome as originally feared. Instead of the three million tonnes of ending stocks, the signs are that ending supplies will fall in the area of two million to 2.4 million tonnes, as demand has been exceptional. This is still a large supply, but is much more manageable than originally feared.
Also, demand in 2009-10 looks like it should increase, although the current economic problems have cut into the potential level of consumption. New crushers coming online in 2009 will add to the demand side of the equation, but whether usage of canola oil will remain at the high pace we have seen in 2008-09 is being questioned.
In 2008-09, exports are expected to be about seven million tonnes, up from 5.66 million in 2007-08. Domestic consumption is forecast at five million tonnes for 2008-09. In 2009-10, domestic consumption is expected to increase to 5.5 million tonnes.
For the coming crop year of 2009-10, the new crushing facilities will add increased competition to the canola oil market and crushing profitability is likely to fall from this year. This will translate back to lower prices ultimately being offered to producers for canola.
Farm gate bids in 2008-09 ranged from lows of around $9/bu. to the astounding high of $17/bu. However, a repeat of this is not likely in 2009-10, as Canadian canola suppl ies appear that they will be adequate. International vegetable oil and oilseed prices do not look like they will climb back to the 2008 summer highs, despite problems in the South American soybean crop.
Canada will see exceptional Chinese demand for canola in 2008-09, with some expecting China to take as much as two million tonnes. It is unlikely that this import level will be repeated in 2009-10. In fact, it’s much more likely that Chinese buying will return to more normal levels of 500,000-600,000 tonnes.
Originally, the grain trade felt that canola acres would drop five to 15 per cent in 2009 from 2008. However, more and more of the trade now expects canola acres to be little changed from last year’s 16.048 million. One thing most people do expect, though, is the yield to fall from last year’s record level, with production likely to come in at 10 million to 10.5 million tonnes.
Total consumption for canola has been revised down to the 11-million-to 11.5-million-tonne level from about 12.5 million tonnes. This will keep canola ending stocks comfortable at 1.5 million to two million and keep the market from rising much above the $10.50-$11/bu. level in the spring and summer, unless something happens to U. S. soybean production or the Canadian canola crop.
The current soybean shortfall in South America is probably about 13 million tonnes between Brazil and Argentina. This is likely to keep U. S. soybean acres reasonably high and prices above the $10/bu. level, possibly as high as the $12/ bu. level this spring. As a result, U. S. soybean acres are expected to expand. The current discount of new-crop soybean futures to the old crop suggests the trade is looking for a sizable increase in production.
Talk in the trade is that the U. S. 2009 soybean crop may be as large as 3.4 billion bushels, which is considerably more than the consumption level, which will likely be in the 2.9 billion-to three-billion-bushel level. This means U. S. soybean ending stocks will likely grow and canola prices will be pressured by a weaker U. S. soybean market in the fall.
As a result, while canola returns in 2009-10 will continue to be profitable, the likelihood of seeing a return to the 2008-09 highs is low. Weather does have the possibility of changing this outlook and early indications are that Canada will see a repeat of the cool, wet spring we saw in 2008. Early forecasts for the U. S. Midwest are for a fairly normal year.
– 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.