ICE Futures Canada canola futures were lower overall during the week ended April 20, as fund traders holding large long positions took the opportunity to book some profits.
After moving higher for most of 2012 before the recent correction, there is definitely an argument to be made that the top may be in for the time being — especially if all the acres being talked about for canola do go in the ground. Early-seeding reports will start to come in over the next few weeks, and recent moisture across much of the Prairies has helped alleviate some of the dryness concerns. On the other side, exporter and domestic crusher demand does remain strong for canola, and any corrections lower have, so far, been met with good buying interest.
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In the U.S., wheat and corn were both down on the week, while soybeans were mixed. Of the grains, the Minneapolis spring wheat futures posted some of the largest declines on news that U.S. plantings were well ahead of normal. Relatively good weather conditions across U.S. wheat-growing areas also weighed on wheat prices, although expectations for increased demand from the feed sector did provide some support.
For soybeans, new-crop prices were down, but old-crop contracts managed to rebound from a profit-taking correction to finish the week on the plus side. The strength was a result of strong export demand from China, and concerns over declining production prospects out of South America.
Spring seeding weather and movements in the U.S. soy complex will likely dictate the activity in the canola market to some extent over the next month, but the state of the European rapeseed crop will also be closely watched.
“Disaster”
Private estimates out of Europe over the past week have raised some concerns over crop prospects, with rapeseed production in the region at about 18 million to 18.5 million tonnes this year. That would compare with 19.1 million tonnes in 2011, as cold conditions over the winter led to more winterkill than normal. Recent rains have helped alleviate some of the dryness concerns, but the damage may have already been done in some cases. “A disaster is shaping up for this year’s rapeseed production in some parts of the European Union,” respected forecasters Oil World said in a report.
Europe produces about a third of the world’s rapeseed/canola, which means production problems there can have a major impact on the international market. While Canada does not export much canola seed to Europe directly — due to European nations’ concerns over genetically modified seed — difficulties in Europe would see more Black Sea-origin and Australian supplies diverted into the region. In that scenario, Canada would face reduced competition into the Asian marketplace — which bodes well for prices. Canada also sells canola into Europe in a roundabout fashion in some cases, with third parties in Dubai or elsewhere crushing the seed and then moving the oil on to buyers in Europe.
When it comes to Europe, the bigger issue these days is the economy. Financial problems in Spain were at the forefront over the past week, and it often seems that just when one fire is put out, another one crops up somewhere else.
A common thought in the agricultural sector these days is that ag markets are somehow immune from the larger economic factors at play. The basic argument is that we’ve entered a new reality of high grain and oilseed prices, with the prior 10-year averages no longer a factor as supplies will now always be tight and demand will always be strong.
There’s nothing inherently wrong with being bullish on the commodity markets, but some caution may also be in order.
This week marked the 100th anniversary of the sinking of the Titanic, and when one looks at the news coming out of Europe most days there is often a certain sense of foreboding as well. Is any good economic news these days simply a case of rearranging the deck chairs? Will the general uptrend in the ag markets just keep rising, or is there an iceberg in their path? Without an answer to those questions, producers would do well to make sure the lifeboats are at least operational, and book profits as they present themselves.
