The ICE Futures Canada canola market hit some fresh contract highs during the week ended Dec. 10, but also ran into profit-taking that limited the upside. While market participants were still digesting the larger-than-expected production numbers put out by Statistics Canada on Dec. 3, those supplies are also being met with some pretty solid demand from both the export sector and domestic crushers.
Weekly numbers put out by the Canadian Oilseed Producers Association show that the domestic crush to date, 2.135 million tonnes, is running about 750,000 tonnes above the year-ago level. That high crush is primarily due to the increased capacity in the country, and the fact that processors continue to enjoy some very profitable margins, despite high seed costs.
The export front is also active, with rumblings of fresh sales to China a constant supportive influence in the market. The most recent Canadian Grain Commission grain handling report shows canola exports to date of 2.625 million tonnes, up slightly from 2.563 million the previous year.
The relatively tight supply forecast going forward, given the firm demand, should keep canola well supported as far as its own fundamentals are concerned. However, the market will likely find itself reacting to the moves in the global financial and commodity markets as well.
Western barley futures were steady to higher, although at present total open interest in the barley market sits at the very lonely level of two contracts.
U.S. grains and oilseeds saw some choppy activity during the week, reacting to weather issues in a number of regions of the world. Activity in the U.S. dollar and the release of updated supply/demand tables from the U.S. Department of Agriculture also accounted for some of the price movement in soybeans, corn, and wheat. Soybeans finished the week down on profit-taking, while corn held on to gains in most months. Wheat posted some impressive advances in Minneapolis and Kansas City, although the Chicago futures lagged to the upside.
Prices for higher-quality wheat traded in Minneapolis and Kansas City were buoyed by the weather issues that just seemed to get worse in Australia over the week. Australia had been sitting on a decent wheat crop until some heavy rains hit in recent weeks – right at harvest time. The soft wheat traded in Chicago is of a lower quality, and low-quality wheat does not appear as if it will be hard to find this year.
For all of the weather problems that hit Western Canada this past year, the beautiful stretch of warm and dry conditions at harvest time helped save a lot of production. Australia, meanwhile, is having the exact opposite kind of year, especially in the eastern part of the country where heavy rains have hit right at harvest time.
Recent estimates place Australian wheat production at anywhere from 22 million to 27 million tonnes. At the higher end of that range were ideas that the good weather earlier in the growing season led to some decent yields, and that the weather problems were being overstated. However, many analysts are starting to revise their projections to the lower end of the range as those weather concerns show no signs of letting up.
Even if Australian fields do dry up enough to allow producers to finish the harvest, the damage is likely already done from a quality standpoint. Some Australian analysts are estimating the country’s wheat crop could be 60 per cent or more feed quality.
It’s also harvest time for canola in Australia, and the rains may lead to quality and production downgrades with that crop as well.
While current industry projections only call for a two-million-tonne Australian canola crop, average production is closer to 1.5 million in the country. Australia can be a major exporter, competing with Canada into Southeast Asia when the Australians have some production to work with. However, the question of how much will be export quality still remains to be answered.
Phil Franz-Warkentin and Dwayne Klassen write for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.
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