For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oilseed future s at ICE Futures Canada in Winnipeg closed the week ended Feb. 12 mixed with weakness in the U. S. futures markets weighing on prices, although it was partially offset by the declining Canadian dollar. Canola saw small losses in nearby futures as country prices rallied to attractive levels and farmer selling developed to push the market lower. Keeping the declines very small was continued strong export demand from China. China has also indicated it wants to take five cargoes of canola a month through May and that was also supportive. New-crop futures continued to be supported by planting uncertainty. Western barley posted losses amid sluggish end-user demand and on weakness in the U. S. corn market.
Chicago corn and soybean futures declined as continued U. S. and global financial instability cast a pall over the market. The firm tone in the U. S. dollar was also a bearish factor in the market. Soybeans also declined on some technically based selling as soybean futures have been unable to penetrate the $10-per-bushel level. However, strong export demand underpinned the market, as did the drought problems with the South American soybean crop. Corn futures posted moderate declines on the weakness in the soybean market and a steep decline in crude oil values. Export demand was strong and that gave support, as did the smaller South American corn crop.
U. S. wheat futures ended the week lower as the lack of interest in the export market for U. S. wheat weighed on prices. Russia continued to take sales away from the U. S. Contributing support throughout the week was dryness concern for the U. S. and Chinese winter wheat crops. There was also some talk about drought conditions developing in Australia.
The U. S. Department of Agriculture’s (USDA) supply-and-demand reports, released on Feb. 10, contained no major surprises, but they did point to the fact that demand for U. S. grains and oilseeds is increasing and that the price risk to the downside is limited.
For wheat, USDA pegged U. S. 2008-09 ending stocks at 655 million bushels, unchanged from its previous report and over double last year’s 306 million bushels.
USDA is optimistic that U. S. wheat exports will hit one billion bushels, down from 1.26 billion last year. The export pace to date suggests this might be a bit high. However, global supplies are tightening and there is talk that Black Sea wheat will not be as aggressive a competitor in the market.
Globally, USDA is looking for 2008-09 wheat ending stocks to be 149.4 million tonnes, up from 119 million in 2007-08. This looks quite bearish for wheat but is not as bad as you might expect, as production rose 72 million tonnes while ending stocks rose only 30 million tonnes. On top of that, USDA has not worked China’s smaller crop into its equation.
With global wheat acres declining and production likely to be 10-20 per cent less in 2009-10, wheat still has a favourable outlook.
The Chinese crop was estimated at 113 million tonnes by USDA and most trade sources are carrying a smaller crop estimate, closer to about 105 million to 108 million tonnes. This is not as bullish as you might expect, though, as China had large wheat supplies coming into the crop year, estimated at 52 million tonnes by Chinese sources. Analysts feel that ending stocks have to drop below 40 million tonnes before we would see an aggressive Chinese wheat import program.
The corn supply and demand were mildly friendly to the market as a result of USDA leaving ending stocks at 1.79 billion bushels, unchanged from its January report. Traders had been looking for lower demand and higher ending stocks.
There are signs that export demand is coming forward for U. S. corn as a result of the drought that has reduced the South American corn crop and the drought that is reducing the Chinese wheat crop. China was expected to be coming a corn exporter this year, but has not yet and traders feel it is because it wants to hold onto its corn until it has a good idea how large its wheat crop is.
For the fourth week in a row, new U. S. corn export sales topped one million tonnes, hitting 1.5 million tonnes, the largest level this marketing year.
FRIENDLY TO CORN
USDA still expects corn used for ethanol production to increase, despite the problems in the industry, as it pegged ethanol demand for corn at 3.6 billion bushels, up from three billion in 2007-08. This is almost a third of the U. S. corn crop. USDA and the U. S. Environmental Protection Agency (EPA) are working together to increase the amount of ethanol being used in the U. S.
This is a friendly backdrop for corn, which will keep corn prices in the $3.50-to $4-per-bushel range. The need to keep U. S. corn acres up will likely boost new-crop corn to well over $4.50/bu., possibly as high as $5, depending on how threatened corn acreage is.
This will be a friendly backdrop to barley, although barley will not completely mimic corn due to large supplies.
For soybeans, USDA lowered the U. S. 2008-09 ending stocks to 210 million bushels, from 225 million in the January report. Strong demand in the export market, mainly from China, accounted for the decline. Traders feel the pace of demand for U. S. soybeans will actually be even stronger, due to the drought problems in the South American soybean crop. They are looking for ending stocks to eventually be lowered below 200 million bushels.
PRESSURED BY EXPECTATIONS
Globally, USDA lowered world 2008-09 soybean ending stocks to 49.87 million tonnes from its January forecast of 59.4 million tonnes. However, analysts feel USDA’s estimate for the Argentine soybean crop, at 43.8 million tonnes, is still too high and that the crop will likely come in below 40 million tonnes. As a result, look for global ending stocks to fall even more and prices to remain firm at the $9.50-to $11-per-bushel level for U. S. soybeans.
The expectation, though, for higher U. S. soybean acres has already caused new-crop soybean futures to be at a significant discount to the old crop. Should the acreage increase prove true and global soybean production in 2009-10 return to normal levels, oilseeds could be quite depressed in 2010.
Everything points to oilseed producers needing to be cautious this crop year with forward pricing required for strong returns.
While canola prices will be strong going into the summer, a large global oilseed crop could send prices down sharply by the fall. Expectation is that Canadian farmers are going to keep oilseed acreage high.
– 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.