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Canola To Top $500 In 2009-10

For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca

Grain and oilseed prices at ICE Futures Canada in Winnipeg closed the week ended June 12 lower. Canola was undermined by losses in the Chicago soyoil market and the absence of fresh demand. China has withdrawn from the market and the crush rate is still running at a slower pace than earlier in the year. Weather problems for the crop were supportive, but were offset by forecasts that conditions would start to improve this week. Farmer selling, other than through delivery contracts, remained light and that limited the decline. The strength in U. S. soybeans had limited impact as it reflected demand for soymeal. Exporter and crusher buying were augmented by some speculative buying. The selling was mostly commercial, with only light elevator company

selling noted. Western barley posted small losses, as there is little interest in the current futures contract as traders wait for ICE Canada’s new contract to be introduced later this month.

Chicago corn and soybean futures were mixed as the U. S. dollar posted a fairly large decline, which gave some support to the markets. Soybeans were lifted by tightness in old-crop supplies as the U. S. Department of Agriculture forecast that soybean supplies will only be available for 13 days of demand at the end of the 2008-09 crop year. The new crop was lifted by more rain hampering planting. Unusually strong demand for soymeal encouraged strength in soybeans as well. Corn futures fell on profit-taking and steady farmer selling. Limiting the decline were recent problems that resulted in USDA lowering the average U. S. corn yield for 2009 by two bushels per acre in its report on June 10. Strong exports and falling corn ending stocks in 2009-10 also gave support.

U. S. wheat futures declined during the week as the market focused on the sluggish export demand and competition from a large global wheat supply. The weakening changed the charts from friendly to bearish and that triggered heavy speculative selling, mainly from commodity funds, which sent the markets to their lows at the end of the week. The market ignored disease problems in the Soft Red Winter wheat crop and the unseeded acres in spring wheat.

USDA, CWB REPORTS

The market outlooks were dominated by two major reports this past week as USDA brought out its latest supply-demand reports and the Canadian Wheat Board had its crop production briefing with its current crop estimates.

For wheat, the CWB said the Canadian crop would most likely be 20.8 million tonnes, down from last year’s 25.5 million tonnes as lower yields cut into the output. This will mean relatively tight ending stocks and the international situation suggests that there will be good prices for good-quality milling wheat.

The USDA wheat supply-demand reports were less friendly for the market despite a big drop in U. S. wheat output. USDA forecast the U. S. wheat crop at 2.016 billion bushels, down

from last year’s 2.5 billion, due to poorer yields and lower acres. This will cause U. S. 2009-10 ending stocks to fall to 647 million bushels from the 2008-09 level of 669 million bushels. USDA reduced both exports and domestic demand for wheat and that accounted for ending stocks not dropping as much as the crop.

Globally, it actually raised world 2009-10 ending stocks to 182.7 million tonnes from 168.46 million in 2008-09. It pegged the world wheat crop at 656 million tonnes, which is likely overly optimistic. The German analytical group, F. O. Licht, has the world crop at 650 million tonnes. Current firm wheat market prices would seem to suggest lower ending stocks. The global wheat outlook is still moderately strong.

BARLEY, CORN

For barley, the CWB estimated the crop at 8.9 million tonnes, down from 11.2 million tonnes in 2008 as lower acres and lower yields reduced the crop. This production number may prove to be too low as a lot of canola land is being reseeded to barley. Regardless, barley production will be below consumption and prices are going to be much stronger. We will see barley rally back to the $5-per-bushel level, certainly in Alberta.

The U. S. corn outlook is very bullish and supports a farm gate corn price of US$5/bu. in the new crop. USDA reduced the U. S. corn yield for 2009 by two bushels per acre. While estimating the 2009 corn crop at 11.9 billion bushels, USDA forecast consumption at 12.5 billion bushels and 2009-10 U. S. corn ending stocks at 1.09 billion bushels, down from 1.6 billion in 2008-09 and just above the critical one-billion-bushel level. It made no adjustments in acres and traders do feel acres are also down significantly. This provides a very bullish backdrop to barley and supports $5/bu. barley at some point in the new crop year.

OILSEEDS

The CWB said the canola crop was likely to be 10.2 million tonnes, down from 2008’s record 12.6 million. Lower acres and yields accounted for the decline. This supports very tight 2009-10 canola supplies and ending stocks well below one million tonnes, likely around 750,000 tonnes. This will keep canola very firm this fall and winter with values near and above $10/bu., with futures rallying back to the $500-per-tonne level. Tight basis and tight supplies will see cash canola bids likely rise as high as $12/bu. in the peak demand times.

The USDA soybean report is also quite friendly, but there are some clouds in this outlook which will ultimately affect canola prices. USDA lowered the 2008-09 U. S. soybean ending stocks to 110 million bushels from its last estimate of 130 million. This is the tightest level since the 1970s. We are likely to see old-crop soybean get into the teens in 2008-09.

The lower 2008-09 ending stocks helped to bring down the 2009-10 ending stocks to 210 million bushels from the previous estimate of 230 million. This would be supportive for the market, but USDA made no changes to either the yields or the acres.

The trade does expect the yields to be lower than the USDA forecast, but they also expect acres to be significantly higher. The result will be higher 2009-10 ending stocks. However, the stocks look like they will not be as burdensome as first feared. The feeling is that the price is likely to remain strong in the $10-$11/bu. area on the futures, with movement to the $12/bu. area occasionally. Any substantial problems with the South American crop or larger Chinese demand will result in soybeans and canola hitting the teens per bushel in 2009-10.

Next week I will look at durum, flax and oats.

– 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.

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