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Canola, soy poised to become ‘weather’ markets

The U.S. avian flu outbreak could cut feed demand

The ICE Futures Canada canola market had an up-and-down week, with very quiet activity some days. Overall, prices were down compared to the week prior due to weakness in outside oilseed markets.

Strength seen in the Canadian currency earlier in the week was also a bearish force for canola, though it started to lose some of its value against the U.S. dollar later in the week.

Overall, canola futures are still stuck in their choppy spring trading pattern, waiting to break out once the 2015-16 Canadian canola crop is more established.

The outlook for the 2015-16 crop became a bit clearer after Statistics Canada pegged area at 19.4 million acres in its April 23 report. Some industry members believe acres need to reach at least 20 million to meet demand. General expectations still call for higher acreage compared to the StatsCan estimate.

Traders are starting to focus more on spring seeding conditions in North America, as soybean planting is now underway in the U.S. Farmers in Western Canada have also started seeding, with southern Alberta the furthest along.

So far, conditions are generally good in both Canada and the U.S., but weather can be unpredictable during the growing season.

With both soybean and canola markets set to become “weather” markets over the next few weeks, trade could be very volatile depending on what the forecasts are saying. Rain one day could delay planting, and spark a rally, while the next day sunshine and warm weather could benefit early-planted crops and seeding progress.

We’re already seeing the effects a weather market can have on prices in corn and wheat futures, both of which moved lower during the week due to favourable conditions.

U.S. progress

Corn planting in the U.S. has been progressing at a rapid pace, as weather conditions in the U.S. Midwest were very warm and dry throughout the week. This was also beneficial for spring wheat seeding.

Wheat values tumbled in reaction to more beneficial rainfall in many U.S. winter wheat growing regions during the week. Some parts of Kansas have missed the recent precipitation, providing some minor support.

The Wheat Quality Council is hosting a tour of winter wheat crops in Kansas during the week of May 4-8, which should give a clearer picture as to how much damage has been done by recent drought.

Weekly crop reports from the U.S. Department of Agriculture will continue to drive all the U.S. markets, with weather forecasts and demand news also of importance going forward.

For soybeans, traders are closely watching news of labour disputes in South America, as any issues moving soybeans out of Brazil and Argentina could shift demand back to the U.S.

Soymeal and corn will follow the avian influenza outbreak in the U.S., as traders worry it will result in reduced demand for both feed grains in the domestic poultry industry.

Demand news remains bleak for the U.S. wheat market, as the U.S. dollar experienced renewed strength late in the week and prices are still cheaper in other parts of the world, including the Black Sea region.

About the author

Columnist

Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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