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Chicago’s soybean complex pulls canola downward

Canola futures on the ICE Futures Canada platform suffered some major downward price action during the week ended Nov. 16, with the sharp losses in the CBOT (Chicago Board of Trade) soybean complex and favourable weather for the planting and development of soybean crops in Brazil and Argentina tied to the declines.

The unloading of risk by investors was also evident in canola, as the U.S. government’s dealing with its “fiscal cliff” (a popular term used to describe the conundrum facing the U.S. government, referring to the effect of a number of laws which, if unchanged, could result in tax increases, spending cuts, and a corresponding reduction in the budget deficit in 2013) made more than a few people nervous.

Chart-based selling by speculative and commodity fund accounts also added to the downward price slide experienced by canola during the reporting period.

Some bargain hunting by commercials helped to slow the price drop in canola. A lot of that interest was said to be covering old export business to Japan that was to be shipped early in the January to March period. Domestic processors were also scale-down buyers during the reporting period, but deteriorating profit margins were slowly dissipating that buying interest. Some participants noted crush margins for canola were at the lowest they have seen over the past four years.

The tight canola supply situation in Canada also continued to provide a bit of a firm floor for canola. The reluctance of Prairie farmers to give up that canola, unless cash flow dictates, helped to restrict the price declines.

Market players commented that it appears the price tops for canola have now been established, and while there could still be some minor upward action in values, the push to higher ground will be limited given the bearish soybean scenario developing in South America and even to some extent in the U.S.

Milling wheat futures lost ground on the ICE trading platform, but there were absolutely no trades seen. Much of that downward price action was associated with the arbitraging of values to match the sell-off seen in U.S. wheat futures. Barley and durum contracts were unchanged and untraded.

Some significant losses were posted in CBOT soybean futures during the reporting period, with values moving from almost US$15 a bushel to down in the US$13.80 range, basis the January contract.

A lot of the downward price action was associated with the increased supply of soybeans in the U.S. and the world, in projections from the U.S. Department of Agriculture. The planting of the soybean crops in Argentina and Brazil was also said to be doing extremely well and crop production prospects there were extremely large.

The declines in soybeans were also a function of risk unloading by investors who do not want to hold any kind of positions in the futures market, given the uncertainty facing the U.S. government and its economic problems. The penetration of technical support levels on the way down amplified the price drop.

Cancelled purchases

News that China has cancelled some significant amounts of U.S. soybean purchases also added to the bearish sentiment. The China National Grain and Oils Information Centre, a government think-tank, reported China’s importers have cancelled shipments of around 600,000 tonnes of U.S. soybeans scheduled for delivery in December and January. Poor Chinese soybean-crushing profit margins were linked to the cancellation of the purchases. There were ideas that additional purchases of U.S. soybeans will be cancelled in the next while.

With the improved South American soybean outlook and the likely replenishing of global soybean stocks, some suggestion has been made that CBOT soybean values are destined to move significantly lower by spring.

Some commodity analysts are of the belief that CBOT soybean futures will be trading around the US$11-per-bushel level by that time. One or two, however, felt the move to US$11 per bushel will actually represent a rally from values that were seen being well below that level. I don’t want to scare anyone off and this is definitely nothing more than speculation, but the scuttlebutt in the market was that soybean values in the U.S. could retrace all the way back to the US$8-per-bushel area.

In making that kind of projection, the sources point to an idea that the USDA is hiding supply in its monthly numbers and the supply base will continuously increase over the next couple of months — and when combined with the record soybean crop in South America, supplies would thus be more than abundant to meet any kind of demand.

Corn futures on the CBOT also lost some ground during the week, but the sell-off was nowhere as large as in soybeans or even wheat. The absence of export demand, combined with the declines in soybeans, helped to fuel the downward price slide.

The losses in corn were offset by a late-week announcement by the U.S. Environmental Protection Agency that it has decided to deny a request to waive ethanol-blending requirements in the U.S. This could have reduced demand for corn even further in the U.S. Concerns about tight U.S. corn supplies also helped to restrict the price drop.

The price trend in wheat futures on the Chicago, Minneapolis and Kansas City exchanges was definitely down. Declines were linked to the complete lack of export demand that has come forward for U.S. wheat, with weekly data from the USDA confirming the lack of sales. Chart-based liquidation contributed to the price weakness, as did the selling off of futures positions by concerned investors.

The losses in wheat were tempered somewhat by the absence of moisture in the U.S. winter Wheat Belt. Continued ideas that world wheat output in some of the major growing regions of the globe are struggling also slowed the price declines.

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