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Canola Use At Record Pace, Supply Declining

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

Grain and oilseed futures at ICE Futures Canada in Winnipeg closed the week ended Feb. 6 higher, with gains in the U. S. futures markets supporting prices. Canola rallied, as China picked up at least five cargoes and was said to be looking for more. Strong demand and disciplined farmer selling contributed to the gains. Technical signals were also positive, pointing to higher prices and likely a challenge of the $450 level once again, according to those who watch the charts. Exporters and crushers were strong buyers, with elevator companies steady sellers. Cash bids were strong, with good premiums available, particularly in Alberta and Saskatchewan. Western barley also advanced in the wake of the gains in Chicago corn futures and on slow farmer selling. However, the news was generally negative as barley supplies are large.

Chicago soybean and corn futures posted gains during the week. Soybeans were boosted by a resurgence in concern about the South American soybean crop. While the Brazilian soybean crop did get rain, the Argentine crop got only a small amount of moisture, with blistering hot, dry conditions forecast for this week. China continued to be a strong buyer of U. S. soybeans. Corn futures advanced more modestly than soybeans, with the dryness in South America contributing to the gains. A major support for the market came from export demand as the U. S. Department of Agriculture reported that for the third week in a row, the weekly U. S. corn exports topped one million tonnes. However, the large corn supply continues to hang over the market.

U. S. wheat futures were mainly lower in all three markets. There was general support in the market from dryness in the main Chinese winter wheat-growing area. Also, ideas that Russia was running out of wheat for the export market underpinned prices. However, wheat futures turned mostly lower as badly needed rain arrived for the parched U. S. winter wheat crop.


By the time you read this, USDA will have released its February supply/demand report (Feb. 10). Coming into the report, trade expectation was for 2008-09 U. S. soybean ending stocks to be reduced. With only 22 weeks of the soybean crop year completed, exports are 60 per cent of the forecast total for the whole year. This is being balanced off by slower demand in the domestic market.

The 2008-09 corn ending stocks are expected to be revised higher in the USDA reports, as demand lags both in the export market and the domestic markets. After 22 weeks of the corn crop year, exports are only 37 per cent of the projections for the year and are down a whopping 41 per cent from last year. U. S. wheat ending stocks for 2008-09 are expected to see a marginal increase, with exports and domestic demand behind forecasts.

While grain and oilseed prices are well below last year, they are well above the 30-year average (unadjusted for inflation) with many almost twice as high as the average. The corn average is about $2/bu., with the market currently trading in the $3.50-$4/bu. range. The 30-year average for wheat has been $3.50/bu., with current prices around $5.50-$6/bu. The 30-year soybean average has been around $5.50/bu. with current soybean prices at $9.50-$10/bu.

This reflects the concern that demand is still outstripping supply and that the

cushion of grain and oilseed stocks in the world is too small to depress the market. Adjusted for inflation prices lag even more. Current corn futures are 32 per cent below their 30-year average and soybeans are 27 per cent below their inflation-adjusted average while wheat is 25 per cent below the 30-year average. These numbers come from Credit Suisse in Zurich and are causing them to be very bullish on the grain and oilseed outlook, despite the economic problems globally.


Statistics Canada’s Dec. 31 grain stocks report, released on Feb. 5, confirmed that supplies of grains and oilseeds are larger than last year. However, looking a bit deeper in the numbers, reveals that canola supplies are much tighter than you might expect given the large supplies at the end of last year and the record-large crop this year.

At the end of the 2007-08 crop year, canola supplies were 1.54 million tonnes and 2009 production was a record 12.643 million tonnes. This means that 14.359 million tonnes of canola were available to the market and everyone assumed that canola would swamp the system and drive prices back below $7/ bu. – yet farmers in the past month have received $10/bu. for their canola and prices have trouble dropping below $9/bu.

The main reason is the demand pace, which has been moving at record levels. Analysts have been expecting to see the crush pace drop from its hectic average level of 94.18 per cent of capacity as canola oil prices have dropped and it looks like we are building a glut. However, the pace has not slowed, with 2.105 million tonnes crushed to date. I am looking for the strong crush pace and big spring seed demand to boost domestic canola demand to 5.059 million tonnes in 2008-09 from 4.325 million last year.

Exports are also moving at a blistering pace, with China likely to take two million tonnes of canola. I am pegging the total 2008-09 exports at seven million tonnes. This would leave ending stocks at 2.3 million tonnes, well below the early predictions for three million tonnes.

StatsCan’s stock numbers would support this level of ending stocks. Also supporting this forecast are the Canadian Grain Commission numbers as of the end of February, as they peg canola exports at 3.52 million tonnes, up from 2.85 million last year. They also report that domestic use is running at 2.296 million tonnes, up from 2.172 million tonnes last year.

The fear of farmer selling also seems to be overstated by the trade, as farmer deliveries to Feb. 1 are 5.6 million tonnes, up from five million at the same time last year while the visible supplies being held by companies are only 945,400 tonnes, down from 1.29 million tonnes last year.

So what does this tell us about old-crop prices? That values will remain firm in the $9-$10/bu. range with pushes above $10/bu. as supplies tighten. New-crop futures currently are trading at a premium to the old crop (this is the opposite of Chicago soybeans), which suggests the trade is not yet totally convinced that farmers will expand canola area sharply. New-crop cash prices should equal the old crop until we have a handle on 2009 canola seeding.

– 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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