For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Gr a i n and oilseed prices at ICE Futures Canada in Winnipeg closed the week ended Oct. 30 mixed with canola higher and barley lower. Canola prices climbed back after their collapse on the news that China would only take blackleg-free canola. The weak Canadian dollar, slow farmer selling and the delayed harvest, as 30 per cent of the Saskatchewan canola crop is still unharvested, helped to boost the market. Friendly technical signals also supported prices as the January contract broke through resistance at $400 per tonne. Barley posted small losses on the sluggish demand and steep declines in the Chicago corn market. Giving some support were steady feedlot demand
and slow farmer selling. As a result, barley’s losses were much smaller than those of U. S. corn.
Chicago futures posted moderate to steep declines. The firm U. S. dollar and weakness in outside markets, including stocks and crude oil, pressured the markets down. Forecasts for improved weather for harvesting this week also weighed on prices. Sluggish exports contributed to the losses in corn and soybeans. However, underpinning both corn and soybeans was uncertainty about the damage done to the crops due to a combination of heavy rain, high winds and cold conditions.
U. S. wheat futures saw fairly big declines on the strength of the U. S. dollar, sluggish export demand and the weakness in corn and soybeans. Improved weather for finishing off planting the Soft Red Winter wheat crop also weighed on prices. Bearish technical signals contributed to the slide in values.
ON THE REBOUND
The rebound in canola prices from their drop, due to China demanding that all canola imports from Canada be free of blackleg, has been quite impressive. As we go to press there has been no concrete news that the problem has been resolved. However, export sources have indicated to us that following Oct. 30 talks between China and Canada, exporters are optimistic that something will be worked out.
The rally in the market comes as the news media paint a pretty bleak picture for the canola outlook. Recent stories focused on the China import problems and the salmonella-in-canola-meal problem that has halted exports of canola meal to the U. S. and cut the domestic crush.
Despite all this, the January canola futures contract has climbed back over $400 and is within $6 per tonne of its pre-export problem highs. In addition, after the initial knee-jerk reaction in the cash market, with basis levels widening out, they have now returned to close to previous levels.
Almost 600,000 tonnes of canola are scheduled to be moved between Oct. 30 and Nov. 11. It does suggest that the news reports of cancelled export sales have been erroneous.
The incredible decline we have seen in the Canadian dol lar this week does not explain the entire bounceback in canola prices. The harvest delays only partially offset the negative news in the export market. The feeling is that harvest delays have
caught about two million tonnes of canola in the field. However, most of that canola will come in.
If I were a farmer with canola to sell, I would be very cautious about being stampeded into unloading canola now. Disciplined selling will likely reward you with extra revenue.
BE AWARE OF BEARS
As we enter the season for farm meetings, be aware that the bias amongst analysts is to be bearish, with the majority of analysts I have been reading suggesting to sell.
However, the negative news is not as intense as you might think. The ability of the markets to soar in the past month suggests there is an underlying bullishness in them and they have the ability to turn around quickly. The wheat outlook, which is one of the most bearish, is a good example.
The Internat ional Wheat Council brought out its latest supply-demand report this past week. It looks incredibly bearish for wheat, with rising production and rising ending stocks.
For the 2009-10 crop year, the IWC has pegged wheat production at 667 million tonnes, up from the September forecast of 666 million tonnes, but well below last year’s 687 million. Global consumption of wheat is expected to be 643 million tonnes, up from last year’s 640 million tonnes. This would leave ending stocks for 2009-10 at 188 million tonnes, up from last year’s 165 million tonnes.
Even more bearish is the fact that the five major exporting nations are holding stocks of 49 million tonnes, the highest level since 2005-06. This would suggest that the wheat outlook is dismal.
However, I would disagree to an extent because this is all past information already known by the trade. The $2-to $3-per-bushel price drop we have seen in the past year reflects this. It does not speak about what is coming.
We do know that U. S. Hard Red Winter wheat acres are down three to five per cent, while Soft Red Winter wheat acres are down 20 per cent. We know that dry conditions have been a problem for Europe, Asia and the Black Sea region. You also know how farmers react to falling prices by cutting acres.
With current U. S. wheat prices at levels that are still well above the 30-year average and acres going down, the likelihood for higher wheat prices in 2010-11 is quite high. In fact, the rally we saw this past month to almost $6/bu. in both Minneapolis and Kansas City wheat futures shows how fast the markets turn. Right now 2010-11 wheat futures are at a premium to 2009-10, which means the trade thinks the situation is changing.
CORN AND SOY QUESTIONS
The uncertainty in the U. S. corn market should also suggest that you should be very cautious in your marketing plans. There is not one year in U. S. Department of Agriculture historical data that shows what happens to the corn crop when the harvest is this late.
We do know that the corn crop is suffering quality loss from the weather and even if the combines start rolling this week, that will not improve quality. Grain elevators from the U. S. Midwest to the Delta are blending poor-quality corn up with higher-quality supplies. Users of corn, from exporters to feedlots to ethanol producers, are paying farmers premiums for high-quality corn.
A poor-quality, smaller-than-expected corn crop will stimulate demand for wheat, forcing up prices while causing soybeans values to rise because of competition for acres between corn and soybeans. As well, higher corn prices result in higher soymeal prices.
One last fact to be aware of when making any marketing plan is that we don’t know how large the U. S. soybean crop is. A University of Wisconsin study shows a four-week delay in the soybean harvest can reduce the soybean yield by 11.5 per cent.
A little skepticism is called for every time you hear an analyst tell you to sell… particularly this 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.