Futures Rise On Fallout From Frosts – for Sep. 23, 2010

Canola futures on the ICE Futures Canada trading platform experienced a significant push upward during the week ended Sept. 17, with much of the upward momentum linked to the frost which hit much of the Prairies.

The frost which occurred overnight both Thursday and Friday of last week was said to have been significant, as readings dropped into the -5 to -7 C

range across much of central and northwestern Alberta into central Saskatchewan. The duration of those cold readings was also said to have been significant.

The cold readings were enough to trigger a fresh round of commodity fund buying, which then triggered some buy-stop orders when technical resistance levels were penetrated on the way up.

Chicago Board of Trade (CBOT) corn futures posted some pretty sharp gains in the latest week as increasing concern over smaller than expected yields in the U. S. fuelled the buying. Weather issues, impacting corn output in other parts of the globe as well, added to the bullish momentum seen in the commodity.

CBOT soybean values also could not ignore the rally seen in corn and in turn followed those futures up. Potential crop production problems in other major soybean-growing areas of the world helped to influence the upside in soybeans. The frost news in Western Canada also contributed to the strength.

Wheat futures in the U. S. were also tied closely to the rally seen in corn, which generated some good support. Continued issues over seeding a winter crop in Russia further provided a firm price floor for wheat futures. Downgrades to the spring wheat crop in Canada were also an underpinning price influence.

Weather issues appear to have taken a firm hold of the various grain and oilseed markets, and it looks like this will be the key factor determining price direction in the near to medium term.

There is certainly going to be a lot of discussion among industry participants in the near term over the extent of the damage the killing frost had on the canola crop in Western Canada. There already has been some debate as to the maturity of the crops that were hit by the frost in Alberta and Saskatchewan.

Some participants believe the crop was already fairly mature but couldn’t be harvested due to the wet and cool conditions centred over that area. If the crop was mature, the frost was not likely to have done much damage.

However, other industry players are of the belief that a good portion of the canola in the frost-bound areas of Alberta and Saskatchewan still were very immature, and in turn contained a lot of green seed. If that’s the case, it’s said the frost would have likely caused some significant downgrading of quality and loss of yield.

The “downgrading and loss of yield” thinking process also provided CBOT soybeans and soyoil with some good support, as with the loss of Canadian production, demand for U. S. products was seen increasing further.

CHILLS IN CHINA

Adding to the weather issues impacting the commodity markets will be the situation in China. Participants in both Canada and the U. S. have started playing up weather outlooks that call for frost in China this week on Wednesday and Thursday. Oilseed crops in particular were said to be vulnerable to damage, because of slower-than-normal development. Heilongjiang, which typically accounts for 33 per cent of China’s soybean production, was expected to experience the bulk of the potentially cold readings.

The corn crop in China was also said to be vulnerable to the cold temperatures, so there is likely to be some additional upward price action milked out of this news in the U. S. corn market as well.

Dryness in Brazil and Argentina is also starting to make the rounds, especially as producers there get set to start seeding soybeans.

Participants in the market are trying to play up the La Nińa event, which was seen deflecting rain systems away from those South American growing areas, just as the seeding season was about to get underway.

However, it’s very unlikely the producers in Brazil or Argentina will back off from seeding soybeans given the recent sharp advances in U. S. soybean values. The need of soybean prices in the U. S. to keep pace with the rally in corn will only be seen as a further inducement for the South American grower to keep soybean plantings on the high end of the scale.

CBOT oat futures have also been influenced greatly by the global weather events, particularly the frost news from Western Canada. CBOT oat values have also rallied significantly and as long as the quality issues in Canada continue to be played up, the upward momentum is likely to continue, especially as U. S. end-users become more and more concerned.

– Dwayne Klassen and Brent Harder write for Resource News International (RNI),

a Winnipeg company specializing in grain and commodity market reporting.

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Forthree-times-dailymarket reportsfromResourceNews International,visitICEFutures Canadaupdates”at www.manitobacooperator.ca.

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