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Canola Trade Bullish Despite Big Forecast

Canola futures on the ICE Futures Canada trading platform posted some modest advances during the week ended Aug. 26 despite the fact that a crop production survey from Statistics Canada estimated output of the crop at a record-size level.

The government agency’s survey for the period ended July 31 said canola production in Canada during the 2011-12 crop year was on target to hit a record 13.193 million tonnes. This was up from the 2010-11 level of 11.866 million but fell at the short end of pre-report guesses, which ranged from 13.142 million to 14.2 million tonnes.

The fact the estimate was at the low end of pre-report ideas helped to spur some independent strength in the commodity. Adding to the bullish price move were ideas that hot and dry weather, since the survey was taken in July, has hurt canola’s yield potential and that when Statistics Canada updates its production survey in October, the production forecast will be significantly smaller.

The advances in canola futures were also helped along by continued hot and dry weather which is said to be hurting soybean yields in the major U.S. growing regions.

The upside in canola was restricted in part by profit-taking as well as by steady farmer deliveries of the crop into the cash pipeline. The advancing canola harvest in Western Canada further capped the upside.

Western barley futures contracts saw some major action during the week, with commercials readjusting positions and adding to some. There was speculation that some of the activity may have been in anticipation of the Canadian government’s intent to remove the monopoly power on barley marketing from the Canadian Wheat Board.

Chicago Board of Trade (CBOT) soybean futures were sharply higher during the week ended Aug. 26. The arrival of hot, dry weather in the major U.S. soybean-growing regions during its critical growth stage provided the momentum that took values up. The advances in CBOT soybean futures were amplified when key technical resistance levels were easily penetrated.

A slight easing of concern regarding the macroeconomic picture among commodity funds and speculative accounts helped to influence the price advances seen in soybeans.

Overbought price sentiment and the disappearance of demand from the domestic and export sectors, tempered some of the upward price momentum.

CBOT corn futures were up significantly on the week, with the gains continuing to reflect the loss of yield potential and the extremely tight corn supply situation in the U.S. A little less uncertainty regarding the macroeconomic picture, combined with some chart-based fund demand, also influence some of the price strength in corn.

Wheat futures at the CBOT, Kansas City (KCBT) and Minneapolis (MGEX) exchanges also posted some pretty good gains during the reporting period. Ongoing disease and yield issues for the U.S. spring wheat crop continued to offer some support. Talk of quality problems with Germany’s wheat harvest contributed to some of the advances, as did spillover from the upside seen in both corn and soybeans at the CBOT. The upside in U.S. wheat futures was restricted by the larger-than- expected Canadian wheat production forecast from Statistics Canada and the absence of fresh demand from exporters and domestic end-users. Canada’s all-wheat production estimate of 24.076 million tonnes was at the high end of expectations and topped last year’s 23.167 million.

LACKS ON FLAX

The StatsCan survey released Aug. 24 failed to provide any really big surprises other than the ones mentioned, but a number that seemed to have escaped a lot of scrutiny was the flaxseed forecast.

StatsCan pegged Canada’s 2011-12 flaxseed crop at a measly 365,000 tonnes. Pre-report expectations had called for the crop to be at least in the 445,000-to 531,000-tonne range. In 2010-11 flaxseed production only totalled 423,000 tonnes.

Participants felt that even with reduced demand from Europe because of Canada’s CDC Triffid issue – and with talk that Ukraine will capture a big chunk of Canada’s previous export market, as that country has a large flaxseed harvest – supplies of the commodity on the Canadian Prairies are going to drop to some very uncomfortable levels in the new crop year.

There were ideas that cash bids for flaxseed as a result could claw their way back to higher ground. While the highs of C$15 per bushel may be a little wishful, a push back toward those levels should be possible.

Meanwhile, weather concerns are going to continue to dictate the movement of CBOT soybeans and, in turn, canola over the next while. The general feeling among U.S. participants is that there will be a further deterioration in the U.S. soybean crop condition rating, which should be conducive for further price advancement.

A key factor to watch moving forward will be the September production forecast from the U.S. Department of Agriculture for the major U.S. crops. Given the inaccuracies of early pod counts in determining the final yield U.S. soybean yield, the September production forecast is uncertain.

Dwayne Klassen and Phil Franz-Warkentin write for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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Forthree-times-dailymarketreports

Canada,visitICEFutures Canadaupdates”at

www.manitobacooperator.ca.

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DWAYNE KLASSENCNSC

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