For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oilseed futures at ICE Futures Canada in Winnipeg closed the week ended Nov. 6 higher. Canola prices rallied as farmers virtually turned off the tap and stopped delivering. Traders feel it will take farm gate bids of $10/bu. to get farmers delivering canola again. There was some talk of some export pricing in the canola market. Soyoil values in Chicago were also stronger and that spilled into support for canola, as it improves the crush margin. Western barley also edged up on the lack of farmer selling with trading volumes very light.
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Chicago futures posted losses, with soybeans and corn continuing to be undermined by problems in the financial sector and the weak tone in the outside markets. Tight credit is forcing liquidation selling by both commercials and speculators and that continues to weigh on the market, despite the fact that fundamental news is actually friendly. Soybean losses were minimized by a very strong export pace and talk that soybean yields are turning out to be disappointing. Corn losses were restrained by rain delays in the harvest and yet another winter storm in the western corn belt that caught much of the corn crop unharvested.
U. S. wheat futures in all three markets dropped modestly on the week on the losses in outside markets and the large global wheat supply. In addition, Ukraine has become an aggressive seller of wheat as it struggles with its economic problems and its need for foreign currency. Giving some support was the downsizing of the Australian wheat crop.
This week’s early Co-operator deadline, because of the Remembrance Day holiday, is a perfect opportunity to catch up on some of the news that generally gets ignored in these days of markets in meltdown.
A big piece of news this week will be the U. S. Department of Agriculture’s monthly production and supply-demand reports on Nov. 10. The trade is expecting to see only small movement in the production estimates, with corn a bit higher and soybeans a bit lower.
The unprecedented production and supply-demand reports issued by USDA on Oct. 28, as it updated its Oct. 10 report, caused traders to look for only minor adjustments.
On the supply-demand reports, traders are looking for the corn carry-over to be raised modestly while the soybean carry-over is expected to be lowered. Once the markets get back to trading the fundamental news, these reports will be supportive for oilseeds and for feed grains. However, until then, outside markets will be leading the grains and soybean markets.
Protectionism concerns
The biggest news of this past week was the election of Barack Obama as president-elect of the U. S. His elect ion was welcomed by U. S. farm groups as he is firmly on the side of the new, very expensive, five-year U. S. Farm Bill. He also supports biofuel production
as a way to get the U. S. away from the consumption of foreign crude oil. On ethanol, in an interview, Obama did say he supports it, but added that at some point it will have to pay its own way and not rely on subsidies.
Obama’s voting record, when he was in the U. S. Senate, was among the most left leaning of all Democrats, which should be a concern for Canadian farmers. It means he tends to favour protectionist and anti-free trade efforts. However, this might change when he heads the nation and does not just represent Illinois.
Obama’s choice for agriculture secretary is expected to be a very pro-farm advocate. Some of the names being thrown around include U. S. National Farmers Union president Tom Buis, former Iowa governor Tom Vilsack and the current head of the House of Representatives’ agriculture committee, Collin Peterson of Minnesota.
Another event that occurred in the past week was the Chapter 11 bankruptcy of VeraSun Energy Corp. The company is South Dakota-based and is one of the three largest ethanol companies in the U. S. It has 14 working plants and produces 1.4 billion gallons of ethanol a year.
Corn hedges
The problem for VeraSun was not the profitability of ethanol production. That profitability is only getting better, though it is still a pretty thin margin. The problem for VeraSun was that it entered an untested and little-known strategy to manage the price risk for corn. These were not traditional hedges and did not cover the price of the ethanol side of the company’s production. Traditional hedges cover both the input side (corn) and the output side (ethanol). As a result profit is locked in.
As corn prices fell sharply, VeraSun was obligated to pay as much as US$7/bu. for more and more corn with ethanol prices falling. Losses are thought to have been over US$100 million for the company.
However, do not fear that VeraSun is out of play and all the corn it was using will come back on to the market. The type of bankruptcy it has entered allows it to keep running and reorganize the company as well as get out of its losing bets.
Even if VeraSun has problems with its restructuring and needs to sell off assets, at least one of its well-heeled competitors has said it is willing to buy up “distressed (ethanol) assets.”
“Stupidest thing”
And in an interview last week in Holland with Dutch television station RTL Z, famed commodities guru Jim Rogers said the U. S. is bankrupt and that coming high inflation will push commodity prices, including grains and oilseeds, sharply higher. He also reiterated his stance that demand will outstrip supply for grains and oilseeds and that will contribute to a substantial rally, which he feels will occur within five years.
For the past month I have been doing farm meetings across central and northern Alberta and I have found that farmers are becoming increasingly depressed about the outlook for farming as prices fall back from spring and summer highs. Rogers however, told a group of farm bankers that “the stupidest thing a farmer can do right now is to sell your farm and buy a house in the city.”
He added that “within a few years farmers will be driving Maseratis and all the stock brokers will be driving cabs.”
– 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.
