Canola price trend hits backwash of lower demand

Canola futures on the ICE Futures Canada platform lost some value during the week ended June 1. Losses in the CBOT soybean complex helped to fuel some of the downward price slide, as did sentiment that canola had become overpriced and was in need of a correction lower.

Macroeconomic issues were again a big feature of some of the price swings experienced by canola, especially as Spain joined the club of European countries having extreme money problems. Some of the selling in canola was risk-reduction plays.

Uncertainty surrounding the weather for the development of canola fields in Western Canada, however, managed to keep a firm floor under the commodity. Bargain hunting by fund accounts was also evident, which further restricted the price declines.

There was little in the way of any price action seen in milling wheat and durum contracts on the ICE platform. However, the new barley contracts experienced some small but noticeable volume totals during the week. Most of the action was conducted between commercials.

Chicago Board of Trade (CBOT) soybean futures lost ground during the reporting period. The macroeconomic concerns played a huge role in the downward price slide, as global investors continued to reduce risk. The resulting upswing in the value of the U.S. dollar also did not do soybeans any favours, as the strong U.S. greenback has scared off export customers. There are also ideas circulating that China could still cancel some U.S. soybean purchases that were made at high price levels. Such a move would only further weaken the oilseed sector. It’s believed that at that stage, China would then begin to buy back some of those cancellations.

Favourable weather for the development of the U.S. soybean crop contributed to the bearish sentiment in the commodity.

CBOT corn futures were also lower on the week with declines in the cash market, the strong U.S. dollar and the absence of export demand behind the bearish price trend.

Some brief support was derived from weather concerns, but those were quickly shrugged off by the industry, given that the longer-term outlooks were still seen being more beneficial for growth than hurtful.

Chart-related liquidation orders, on top of the macroeconomic unloading of positions by global investors, also undermine corn futures.

Wheat futures at the CBOT, Kansas City and Minneapolis exchanges were lower on the week. Much of the selling interest was linked to the favourable conditions for the development of the wheat crops in the U.S. The arrival of much-needed precipitation in the major wheat-growing areas of Russia and Europe also added to the bearish sentiment in the market.

Further weakness in the wheat market came from reports that the U.S. winter wheat harvest was underway, and that early indications showed yields for the crop were much better than had been anticipated.

Some minor demand from the feed sector did slow the price declines, but given that corn values have also dropped significantly over the past couple of weeks, competition for this sector was again beginning to switch over.

It appears the economic problems of the globe are not destined to ease anytime soon, and will continue to be dominant factors to be monitored in North American grain and oilseed markets.

One has to remember that while Portugal has not been in the news as of late, the financial crisis in that country has not been resolved yet. The situation in Greece has been put on hold while its election process continues. However, even with a new president being elected later in June, the financial situation there will also not be fixed anytime soon.

Spain is only the latest of more euro-zone countries that are expected to have money problems. The key to resolving this issue seems to be beyond the capacity of the EU to cope with at this time. As a result, look for more risk reduction by investors on the CBOT and ICE Futures Canada platforms.

Demand for canola has also waned significantly, creating a bit of a backwash in the upward price trend the commodity has enjoyed as of late. The demand vacuum has been especially noticeable in the July future, with both export and domestic needs now covered well into new-crop months. The potential for an early canola harvest on the Prairies, assuming the weather continues to co-operate, also does not bode well for any major pickup in canola demand.

There are also ideas that once farmers are finished seeding and have taken care of any spraying or late field work, deliveries of old-crop canola will pick up and in turn depress canola values additionally.

This is not necessarily fresh news to farmers, but should be considered a reminder if nothing else.

There is still plenty of room for a weather scare to help canola futures push back to significantly higher levels, and those are bound to happen.

However, with Statistics Canada already working with canola plantings of 20.3 million acres and with that number likely to grow further by the time they release their late June acreage update, the production total will help to offset any supportive impact weather issues may have.

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