Canola futures on the ICE Futures Canada trading platform suffered a major price setback during the week ended March 11, with much of the downward price slide associated with the unloading of positions by speculative accounts.
None of the liquidation orders were based on fundamentals; rather, individuals were unnerved by ongoing tensions in the Middle East and North Africa as well as by the massive earthquake that hit Japan. The earthquake only heightened uncertainty surrounding the ability of the world’s economy to continue its recovery. As a result, the unloading of risky commodity positions was commonplace in North American markets.
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Losses in canola were amplified by the triggering of sell-stop orders on the way down. Losses in the outside oilseed markets further contributed to the weakness displayed by canola.
Bargain hunting at the lows by commercials helped to restrict the price declines.
Western barley contracts on the ICE Futures Canada platform again failed to register any interest during the week, which left the commodity unchanged and untraded. Many participants continue to wonder when ICE will delist the commodity. Only 10 contracts are open currently in the October future.
Chicago Board of Trade (CBOT) soybean futures experienced some significant price declines during the week. Much like canola, soybeans also suffered the same fate, moving down on aggressive liquidation orders from speculators who were reducing their exposure to risk given the uncertain global environment.
A U.S. Department of Agriculture report showing record-large soybean output in Brazil also influenced some of the downward price action in soybeans. USDA raised its Brazilian soybean production forecast by 1.5 million tonnes to 70 million. There are a few estimates out there suggesting Brazil’s soybean crop will be above 71 million tonnes. While the market was looking for a reduction in USDA’s Argentine soybean production forecast of 49.5 million tonnes, it was left unchanged. Some market participants now believe that Argentine soybean output may be as high as 52 million tonnes given USDA’s latest numbers.
Corn values at the CBOT also experienced some sharp losses with the unloading of risk exposure by speculative accounts behind much of the price weakness. The failure of USDA to trim its U.S. corn ending stocks projection contributed to the downward price slide seen in corn futures.
An increase in the size of Brazil’s corn crop estimate by USDA was also an undermining price influence. Adding to the bearish price sentiment in corn were ideas that acreage to U.S. corn could come in at 92 million to 94 million acres, which would ease tightness projections for the 2011-12 crop season.
Wheat futures at the CBOT were sharply lower with USDA’s revised upward wheat carry-over projection for 2010-11 behind some of the weakness. USDA’s four-million-tonne increase to projected world wheat ending stocks for 2010-11 was also an unexpected surprise and helped to generate the downward price action seen in wheat futures.
The unloading of risk by speculative fund accounts only served to augment the price weakness seen in U.S. wheat futures.
OUT OF STEAM
Canola futures have suffered some major declines over the past month and there may be some additional weakness still ahead in the weeks ahead. Market participants continue to point to the growing list of uncertainties facing the global economy and the risk involved in holding positions in the commodity sector as reasons for the price slide remaining intact.
However, the bull run that had been seen in ICE canola futures during the early part of 2011 does seem to have run out of steam and new crop threats will need to surface in order for some type of spring rally to develop.
There are ideas from the industry that canola supplies on farm are more than adequate to cover needs during the remainder of the crop year, which ends July 31. They pointed out that both export and domestic needs have been more or less covered during the remaining months.
In fact, a number of market participants who at one point had been projecting some extremely tight 2010-11 canola ending stocks have been slowly bumping up those estimates.
Ideas that producers across the Canadian Prairies will seed more than enough canola this spring has also slowed the upside in prices. Most of the trade is working with a Canadian canola acreage figure in the 19.5-million-acre range, which would indeed be an all-time record high.
There are ideas that even with spring-related planting delays that the crop will still be plentiful come harvest time.
Some individuals have suggested that despite the potential for flooding and seeding delays due to excessively wet conditions, all producers really need is a two-week window to get the crop into the ground sometime in May.
As for a spring-related rally, the canola acreage forecast will really need to decline and will need to be convincing to the industry before futures prices for the commodity will be able to recover.
There is also the potential for CBOT soybean futures to initiate some upward price action as concern ahead of USDA’s March 31 prospective plantings report triggers some last-minute price gains in order to ensure an adequate acreage base.
Some upward price action in canola, as well as CBOT soybeans, should also come as values are extremely oversold and were in need of an upward correction.
Dwayne Klassen and Brent Harder write for Commodity News Service Canada, a
Winnipeg company specializing in grain and commodity market reporting.
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Forthree-times-dailymarket reportsfromCommodityNews ServiceCanada,visit“ICE FuturesCanadaupdates”at www.manitobacooperator.ca.
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DWAYNE KLASSENCNSC
