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EU Uncertainty, Weather Fog Up Crystal Ball

For three-times-daily market reports from Resource News International, visit “ICE Futures Canada updates” at www.manitobacooperator.ca.

ICE Futures Canada canola futures experienced some choppy trade during the week ended May 21. Large movements in the outside financial markets, together with improving crop conditions across Western Canada, had sent values to fresh contract lows at one point during the week. However, that outside economic instability also weighed sharply on the Canadian dollar, and the large declines in the currency resulted in canola values ending only slightly weaker than during the previous week.

The Canadian dollar dropped by nearly four cents relative to its U. S. counterpart at one point during the week, but managed to see a little recovery and was only down by about three cents on Friday. Using a base canola price of C$380 per tonne, that tonne of canola would have cost US$10 per tonne more a week ago, given a three-cent decline in the Canadian dollar. Work that out to a 50,000-tonne shipment, and the weaker currency represents a savings of $500,000 for customers pricing in U. S. dollars. While there are other factors to consider, such as product values and shipping rates, those numbers should conceivably be encouraging some fresh export demand.

Aside from any future canola business encouraged by the weaker Canadian dollar, the current export pace is looking pretty brisk in its own right, although the export pace is still behind the year-ago level.

Currency exchange rates also play a part in domestic crush margins, as the product values are based on U. S. pricing. However, with soyoil and soymeal both down on the week, the movement in the currency only helped crush margins improve by C$6 (US$3) per tonne, according to data released by ICE Futures Canada. The crushers are usually working a few months ahead, but the fact that margins continue to hold above C$100 per tonne should bode well for demand from the processors. Canola seed exports may be down on the year, but the domestic crush is starting to pick up steam and will likely soon surpass the year-ago levels. As a result, any reduction in canola seed exports should be made up for with sales of the higher-priced products.

Seeding operations were starting to near completion in some areas of Western Canada, but many producers remain focused on getting this year’s crop in the ground rather than marketing. Provincial crop reports continue to look relatively favourable across most of the Prairies, although on a field-by-field basis there are still some areas on the dry side, while others could stand to see some timely rains, especially if planting is finished.

Barley futures remained untraded, although cash bids were seeing some improvement as feedlots in Alberta have been forced to pay up in order to persuade farmers to take some time away from seeding and make deliveries. Any upside in cash bids will be limited by the large, competing feed supplies, such as U. S. dried distillers grains (DDG).

BEARISH INFLUENCES

Looking at the U. S. futures, soybeans at the Chicago Board of Trade (CBOT) moved lower during the week, with much of the selling pressure there coming from the strength in the U. S. dollar and the great Midwest crop conditions.

“Economic uncertainty” in Europe, as the problems in Greece start to snowball across the region, was to blame for much of the activity in soybeans during the week, as the commodities found themselves caught up in larger financial movements outside of their control. Short-covering at the lows helped temper the downside, as did the tightening nearby U. S. supplies.

That general “economic uncertainty” also accounted for some selling in corn, although corn managed to find its own independent strength and post gains on the week. The gains in corn were spurred on by additional confirmation of U. S. corn sales to China, and the resulting pickup in demand from other customers. The corn market could have a tough go of moving any higher without any additional demand news, as Midwest weather conditions continue to be very beneficial for the developing crops.

Wheat values in the U. S. were steady to higher, with both the Minneapolis and Kansas City markets posting advances. Chicago wheat futures were only up about a half a cent in most contracts on the week, after trading to both sides of unchanged. Any strength in wheat was tied to speculative short-covering, as market participants continue to cite ample world supplies and poor demand as overriding bearish price influences.

“Economic uncertainty” will likely be a common catchphrase in wheat and most other commodities in the weeks ahead, with the inherent uncertainty of the weather only compounding the difficulties of predicting the markets through the summer months.

Phil Franz-Warkentin and Dwayne Klassen write for Resource News International (RNI), a

Winnipeg company specializing in grain and commodity market reporting.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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