For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oilseed futures at ICE Futures Canada in Winnipeg closed the week ended March 6 mixed, reflecting a mixed tone in the Chicago market. Canola was higher in the old crop, supported by the tightness in the cash market as strong demand and disciplined farmer selling kept supplies relatively tight. Also giving some support was a weak Canadian dollar and continued export interest from China.
However, new-crop canola futures saw moderate losses on ideas that Canadian canola seedings were going to rise this spring from 2008. Weakness in the Chicago soy complex also weighed on the market. Western barley firmed on small gains in U. S. corn and the lack of farmer selling. Concern about Canadian barley acres also gave some support.
Chicago corn and soybean futures were pressured by the weakness in the outside markets and the gloomy economy. Grain and soybean prices held up well in the face of a six per cent drop in the Dow Jones stock market average during the week, with only small losses in the soybean complex and gains in the grains. Soybeans saw small losses in the old crop on technically based selling and beneficial rainfall for the Argentine soybean crop. Bigger losses appeared in the new crop on expectations for large U. S. soybean plantings. Demand remained strong for U. S. soybeans. Corn futures posted small gains as rising export demand gave support. Ethanol has returned to modest profitability and demand from that sector supported the market. However, the continued global financial instability limited the strength in the market.
U. S. wheat futures rallied in all three markets, mainly on ideas that recent losses have left wheat oversold and due for a rally. Also giving support, particularly in Kansas City, was continued dryness on the Great Plains for the U. S. winter wheat crop. Demand does remain sluggish, though, and that limited the upside in the market.
MORE CANOLA SEEDINGS
Interesting developments appeared in the canola market this past week and they generally suggested a poorer outlook for prices. Technical factors have turned negative enough to encourage commodity funds to short sell canola. That means these savvy speculators are selling futures, expecting the market to fall. They will then be able to buy their futures back at a profit. Right now they are short between 6,000 and 8,000 May contracts. They do have a fairly solid history of making accurate predictions about the canola market, although it is not perfect.
The other interesting thing in canola has been the big decline in new-crop canola futures prices, as the market now suggests that more than enough new-crop acres have been committed to canola by farmers. New-crop canola futures are below the old crop for the first time this year.
Seeming to confirm the market price movement are the latest Agriculture and Agri-Food Canada acreage and supply/demand reports. AAFC is forecasting 2009 canola acres at a record 17.235 million, up from its January estimate of 16.803 million and last year’s 16.159 million. Judging by market price movement, the grain trade and AAFC now agree that canola seeding will see a big increase.
AAFC’s supply/demand report for canola also contained some interesting numbers. While raising the acreage estimate for canola to a record-high level, they forecast production at only 11.68 million tonnes, down from 2008’s crop of 12.643 million. AAFC, like much of the trade, expects the average yield to drop back from 2008’s incredibly high record level to more normal levels.
For the 2008-09 crop year, AAFC raised its export forecast significantly as China continues to be a big buyer and that caused AAFC to lower its ending stocks level to 2.6 million tonnes, from its earlier forecast of three million tonnes.
I feel this ending stocks level is still a bit high, as the demand pace continues to be exceptional. I think we could ultimately see supplies as low as 2.3 million tonnes for 2008-09 ending stocks.
AAFC is looking for strong demand in 2009-10 as it pegs canola exports at a record 6.9 million tonnes, which is not unreasonable, and domestic use at 5.2 million tonnes. With production at 11.68 million tonnes, AAFC is looking for ending stocks to drop to 2.3 million tonnes in 2009-10 from 2.6 million tonnes in the current crop year. I think this is a bit high and feel that ending stocks in 2009-10 are more likely to come in at 1.8 million to two million tonnes.
What this means for prices is that the big rally of the past year is behind us, but that prices should remain fairly firm in the $8 to $9.50 per bushel for a farm gate price in 2009-10.
RECORD SOYBEAN CROP
Also weighing on the canola market will be the large U. S. soybean crop as recent forecasts suggest a record 2009 bean crop and higher U. S. 2009-10 ending stocks.
The South American soybean crop has now been rescued by recent moisture and the Argentine soy output is expected to be about 42.5 million tonnes, down from early estimates of 50 million tonnes. The Brazilian crop will be about 57 million tonnes, down from early estimates of over 60 million tonnes. This will give some support to springtime oilseed values, but will not be as supportive as first hoped for.
The other AAFC acreage forecasts were about as expected. Wheat acres in 2009 were pegged at 23.227 million, down from 25.009 million. This will bring down the total wheat supply. Durum acres were expected to drop to 4.94 million, from 6.03 million in 2008. The high ending stocks and repeated warnings from the Canadian Wheat Board about durum oversupply succeeded in reducing the seeded area. However, durum ending stocks will still be quite large in 2009-10.
AAFC forecast 2009 barley area at 9.35 million acres, which is unchanged from 2008 and will keep barley supply in equilibrium. Prices should see some strength. I was surprised that AAFC lowered oats acres to only 4.24 million from last year’s 4.34 million. Given the large ending stocks in 2008-09 and some disappointing prices, I actually expected to see a large decline in oats area. I would still expect to see this number come in lower.
For flax, AAFC estimated the 2009 acreage at 1.693 million acres, up from 1.56 million in 2008. This number also surprised me, as the strong flax prices and the fairly good outlook caused me to expect to see flax area at a level of two million acres or higher. – 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.