For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oilseed f u t u re s at ICE Futures Canada in Winnipeg closed the week ended Jan. 30 lower, with canola posting only moderate losses. The fact that Asian demand has been sidelined by the Chinese New Year holiday weighed on the markets, as did a soft tone in the Chicago soy complex. Steady, but not heavy, farmer selling weighed on the market on the relatively low volumes. The old crop saw bigger losses than the new crop. Commodity funds rolled their March futures into the May contract, accounting for the bulk of the week’s canola volume. Western barley posted moderate losses on sluggish demand and weakness in the Chicago corn market. Trading volumes were relatively light, with commodity funds accounting for a significant amount of the activity as they rolled their March positions forward.
Chicago corn and soybean futures posted moderate losses. Soybeans were undermined by rain forecast for the drought-stressed Argentine soybean crop. Sluggish export demand, due to the Chinese New Year hol iday, contributed to the weakness. A slower crush pace also weighed on the market . Corn futures also declined on slow export demand and the weaker pace to domestic consumption. However, trading activity was relatively quiet.
U. S. wheat futures posted losses, with the new crop seeing smaller declines. The sluggish export pace weighed on the markets, as did the firmness in the U. S. dollar. However, giving support in the old crop were signs that U. S. wheat prices are close to being attractive to the international market. In the new crop, price losses were smaller as the smaller global new crop, weather stress for the U. S. winter wheat crop and the smal ler Argent ine wheat crop gave support.
This week is considered a critical week for the Argent ine soybean crop. So far analysts feel that the crop has lost 10 million tonnes of production, but that reasonable rains this week will keep the crop from dropping anymore. Coming into this week, forecasts called for more rain, but not all forecasts were in agreement.
Agriculture and Agri-Food Canada brought out its first forecast for 2009 acres and it contained interesting numbers. I have been attending meetings across Western Canada and I would say farmers are still mostly undecided about much of their acreage decisions.
One of the most interesting numbers in the AAFC forecast was canola at 16.8 million acres. This is up from 2008’s 16.159 million acres and is certainly justified by the fact that canola returns are among the best of all crops. The decline in inputs has also made canola more attractive and new-crop bids have ranged between $9 and $10 a bushel, which has assured profitability, as long as you get a crop.
A 16.8-million-acre area is a reasonable number and would not be burdensome for canola, as everything points to yields dropping from last year’s record levels. The fact that new-crop canola futures continue to hold a premium to the old crop suggests the market still wants to buy more acres.
The numbers in the AAFC forecasts with which I have the greatest problems are barley and oats.
AAFC is forecasting the barley area at 9.674 million acres, actually higher than last year’s 9.357 million. Given the large supplies of barley that will be left over at the end of the crop year and the generally poor prices that barley is commanding, my expectation is for barley acres to drop back between five and 10 per cent.
Malting barley prices should be reasonably strong in 2009-10, but given the small amount of the total barley crop that is selected for malt, there is no justification for an increase in overall barley acres.
Oats acres are being pegged by AAFC at 4.374 million, little changed from 2008’s 4.345 million. Given the poor prices (maybe the poorest of all prices) it is hard to justify unchanged acres. Given the high ending stocks for 2008-09, oats acreage should actually be down at least 10 per cent. If AAFC is right, oats ending stocks will remain high and prices will drop well below $2/bu. in many areas.
Canadian wheat area is expected to drop to 23.895 million acres in 2009 from 25.009 million in 2008. This is a reasonable decline, given the drop in wheat prices and the relatively higher ending stocks. Durum will account for almost half the decline. With global wheat production in 2009-10 likely to be down 10 to 20 per cent, wheat could actually prove to be quite profitable.
I was also a bit surprised by AAFC pegging the 2009 flax area at 1.556 million acres, little changed from 2008’s 1.56 million. Flax has seen good returns in the past few years. In addition, I think that new-crop bids of about $10/bu. should buy more acres. Old-crop cash bids this spring are expected to approach the $13/bu. level and that should also encourage more area. As a result, I expect to see flax area ultimately up about 10 to 20 per cent.
The expectations for U. S. planting are that we will still see an increase in soybean area and decrease in corn area. However, recent surveys have noted a shift over the past four weeks so that the increase in soybean acres has not been as great while the drop in corn acres has been smaller.
Falling fertilizer prices have been one reason for the shift to more corn and less soybeans. Signs are that fertilizer prices may see further declines as both Russia and China are talking about removing their export duties, which would effectively lower global fertilizer prices.
Al so, the U. S. Obama administration in the past week said that it intends to use some of its stimulus money to support the U. S. ethanol industry and encourage more ethanol production. This would also support higher U. S. corn acres.
As a result, it looks like the higher U. S. soybean output that was felt to be a bearish influence on the canola market in 2009-10 may not have the negative price impact that was originally feared. This would also support higher canola area.
– 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.