Canola futures on the ICE Futures Canada trading platform moved higher during the week ended Aug. 16, breaking above the key resistance level of $500 per tonne. The rally was led by strong gains seen in the Chicago soybean complex.
Canola futures were also supported by some independent fundamental factors, including rumours of fresh export demand and continued worries about slow crop development in Western Canada.
With temperatures below average recently, crops have developed slower than normal, which is raising concerns they will be more susceptible to early frost.
But warmer weather has returned as of mid-August and is expected to stick around for at least a little while, which will help speed up the development process.
If weather conditions stay good and crops avoid frost damage, some traders believe the Canadian canola crop could produce a record-large 16 million tonnes.
We will find out some updated production estimates from Statistics Canada on Aug. 21, which will help provide some direction for canola futures.
Agriculture and Agri-Food Canada released updated supply-and-demand tables on Aug. 13 and estimated Canadian canola production at 14.6 million tonnes in 2013-14, above the 2012-13 level of 13.3 million.
Another noteworthy change in the Agri-culture Department’s supply-and-demand tables was its carry-out stocks estimates for canola in both 2012-13 and 2013-14.
The agency upped its 2012-13 ending stocks estimate for canola to 650,000 tonnes, from its previous estimate of 350,000. Ending stocks are estimated at 700,000 tonnes for 2013-14, up from July’s estimate of 400,000. Though Agriculture and Agri-Food Canada increased its ending stocks forecasts, the numbers are still tight for both crop years, as anything less than one million tonnes is considered tight.
The market didn’t seem to react much to the tables, as most other aspects of the report were little changed from July’s release.
With the key resistance of $500 now broken, North American weather and what happens with the Chicago soybean market will be determining factors in where the market moves.
There’s still some room to the upside in Chicago soybeans, due to nervousness about production due to unfavourable weather forecasts throughout mid-August, which could be supportive going forward.
But there aren’t many problems to speak of with the Canadian canola crop, which likely will lead to choppy trade throughout the next couple of weeks.
Bullish book for beans
In the U.S., soybeans surged sharply higher, as previously mentioned, underpinned by concerns about dry weather forecasts for U.S. soybean-growing regions next week.
A bullish U.S. Department of Agriculture report, released Aug. 12, was also behind the rally in soybeans, as the government agency reported smaller-than-expected U.S. soybean production for 2013-14. USDA estimated the U.S. soybean crop would produce 3.255 billion bushels, below expectations of 3.336 billion.
The USDA report was also friendly for Chicago corn futures, but they finished the week only slightly higher, as the post-USDA rally was short lived.
The agency pegged 2013-14 U.S. corn production at 13.76 billion bushels, down from its previous estimate of 13.95 billion and expectations of 14.01 billion bushels.
But the rally was short lived because of the fact that a 13.76-billion-bushel U.S. corn crop is still record large. Strong competition from South American corn supplies was also bearish.
USDA’s report had a neutral effect on U.S. wheat futures, including those in Chicago, Minneapolis and Kansas City (which are now traded in Chicago). USDA left its all-wheat production estimate for 2013-14 unchanged.
Chicago wheat futures were lower, while Kansas City and Minneapolis futures were mostly weaker, with the exception of the nearby September contract on both trading platforms.
Export demand is still strong globally, but talk is that U.S. wheat prices are overpriced and need to move lower in order to attract fresh demand.
There were some reports earlier in the week of adverse weather slowing the progress of the Russian wheat harvest, but conditions turned around by the end of the week and things were moving along well again.