Efforts to ration demand support canola futures

Canola futures on the ICE Futures Canada trading platform continued its slow but steady upward trek during the week ended Feb. 1. Strength in the futures contract was maintained by the need to ration the tightening canola supply situation in Western Canada.

There has not been any kind of let-up in the need to cover commitments by domestic processors, who have been actively raising cash bids in hopes of securing enough supplies. Export outlets have also been busy trying to cover sales on the books, which has only served to further increase the value of canola. There were again unconfirmed rumours of fresh sales being made during the week.

The upside price push in canola was complimented by the advances experienced by CBOT (Chicago Board of Trade) soybean values. The Canadian dollar, which moved back to parity with the U.S. dollar, also was generally supportive of the gains seen in canola. Bullish chart signals were also conducive to the continued upward momentum seen in the commodity.

With the March canola future able to penetrate resistance at $600, the contract then made a push to the next line of resistance which was pegged at the $622 level. If the bulls are to maintain control, the contract will need to have a number of closures above that level to confirm that the commodity is ready to try to move to the next leg up. As of Friday (Feb. 1), there had been two settlements above that area.

Dryness issues in the soybean-growing regions of Argentina were also helpful in keeping the upward price potential in canola intact.

The upside in canola was tempered by bouts of profit-taking and from steady levels of elevator company hedge selling, particularly in view of Prairie farmers taking advantage of the $14-or-better cash bids being offered by these companies and domestic crushers.

Activity in the milling wheat, durum and barley market on the ICE platform remained non-existent. There wasn’t even any arbitraging of values by ICE Futures Canada seen during the reporting period.

CBOT soybean futures posted some significant advances during the reporting period, with the push higher attributed to steady demand from the export sector as well as from concerns that the dryness in the soybean-growing areas of Argentina has been worsening instead of improving, despite weather outlooks calling for beneficial precipitation.

Much of the export demand that surfaced for U.S. soybeans was said to have come from China.

Private forecaster Informa later in the week lowered its soybean output estimate for Argentina to 54.6 million tonnes. This was down 3.9 million tonnes from the company’s January projection. The company acknowledged the dryness has lowered the yield potential of the soybean crop there. Further losses in production were seen if the dry weather lasted into February.

However, despite the production loss in the Argentine soybean crop, Brazil’s soybean output was on the rise. Informa pegged Brazil’s soybean 2013 soybean crop at 70.3 million tonnes, which was up 4.1 million from its January forecast.

For comparison purposes, the U.S. Department of Agriculture in its Jan. 11 supply/demand report estimated Brazil’s soybean crop at 82.5 million tonnes and Argentina’s at 54 million.

The weather situation in South America will certainly remain a key factor in determining the price direction of CBOT soybean futures in the weeks ahead. However, concerns about acreage in the U.S. this spring have also been helping to gently fuel some upward price momentum in the commodity.

Market participants have been quietly watching the mood of farmers in the U.S. and have noticed that these producers are not exactly thrilled about putting the crop into the ground. Keeping in mind the soybean availability in South America, this still has brought forward ideas that values for U.S. soybeans will need to climb in order to encourage enough acres get planted to the crop to meet commitments.

Corn futures on the CBOT also managed to move to higher ground during the week, with support stemming mainly from the dry weather situation in Argentina, which is also stressing yield potential. Corn production estimates for Argentina have been lowered to around the 25-million-tonne range, representing a drop of two million from projections made in January. USDA, in its Jan. 11 report, pegged Argentina’s corn output at 28 million tonnes.

The upside in corn was hard earned, given that there was little on the export and domestic demand front. Bearish chart signals also worked against the commodity making any kind of significant push to the upside.

The price trend in wheat futures on the Chicago, Minneapolis and Kansas City exchanges continued to be to the downside during the week. The continued absence of demand from the export sector encouraged some of the price weakness, with chart-based liquidation by speculative and commodity fund accounts helping to undermine values.

The downward price trend was tempered in part by the dry weather situation in Argentina, which was also believed to be hurting wheat output there. However, production estimates from that country by market participants have been left unchanged — which then begs the question on whether there has been any kind of damage.

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