Grain Markets Turning Increasingly Bullish

For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at

Grain and oilseed prices at ICE Futures Canada in Winnipeg closed the week ended May 14 mixed. Canola was higher, supported by strength in the U. S. soy complex. Canola was also lifted by a strong export lineup, favourable crush margins, slower farmer selling and friendly technical signals. Weather delays in seeding the crop also helped to boost the market as the new crop saw the biggest gains. Weighing on the market was the very strong Canadian dollar and the lack of significant fresh export sales. The buying came from crushers with routine exporter pricing noted and good levels of speculative buying also noted, mainly from commodity funds. Western barley futures declined during the week as the lack of demand caused prices to erode, despite strength in the U. S. corn market.

Chicago soybean and corn markets rallied during the week. Soybeans were lifted by the tight old-crop supplies, continued strong demand out of China and bullish technical signals. The new crop followed the old crop higher, with smaller gains noted on ideas that soybean acres will be higher, due to rain delays in corn planting. Corn futures advanced as demand remained strong, outstripping trade forecasts. Rain delays in planting the corn crop also boosted the market. Technical signals were bullish and that prompted gains as well. Farmer selling did accelerate as corn prices rose, but the market absorbed it.

U. S. wheat futures were steady to higher, with the biggest gains in the Minneapolis spring wheat futures. Minneapolis was boosted by the continued delays in spring wheat seeding and talk that farmers were switching from spring wheat to other crops. Kansas City wheat followed the Minneapolis market higher and drew support from a forecast for a smaller U. S. winter wheat crop. The gains in Kansas City and Minneapolis spilled in to support the Chicago markets but the market there was really little changed on the week.


The U. S. Department of Agriculture brought out its latest supply-demand reports on May 12 and generally confirmed that the market outlooks are improving.

For soybeans, USDA lowered the 2008-09 ending stocks to 130 million bushels from 165 million, as exceptional export demand, mainly from China, continued. It also lowered the 2009-10 U. S. soybean ending stocks to 230 million bushels due to the lower carry-in from this year. The 2009-10 ending stocks estimate is likely a bit on the low side, as corn planting delays are going to result in more soybean acres in 2009. Informa Economics is forecasting that there will be 2.26 million more acres of soybeans than USDA forecast in March at 78.3 million.

However, with the smaller global supply, that increase may not prove as negative as might be thought. Right now new-crop soybeans are about $1.50 per bushel below the old crop, which suggests we could see new-crop soybeans drop as low as US$8-$8.50 before prices recover after the harvest.


This is a solid backdrop for

the canola market, where cash bids have hit $11/bu. in parts of Western Canada as demand is going to be exceptional. Record exports and record crushing will draw what had been burdensome canola supplies down to almost tight levels in the 1.5-million-to two-million-tonne level in 2008-09.

Exporters have started to fairly aggressively price in the new crop November futures contract, which suggests the demand will continue to be around in 2009-10. As a result, I have revised my new-crop highs up to the $12/bu. level after the harvest. I still think we have some downside in the market this summer, though.

The canola outlook has turned very friendly. Globally, consumption of canola/rapeseed will outstrip production in 2009-10. Well-respected Oil World magazine forecasts that ending stocks of rapeseed/ canola will drop to five million tonnes in 2009-10 from 7.7 million tonnes in 2008-09. While I do not see a return to the highs of last year, it should be a very profitable year for canola producers.

For corn, USDA forecast that 2008-09 ending stocks would drop to 1.6 billion bushels from its April estimate of 1.7 billion, as exceptional export demand is eating through the large supplies. Even more positive for feed grain prices was the 2009-10 U. S. corn ending stocks estimate of 1.145 billion bushels as USDA cut the average yield due to delayed planting.

However, it did not significantly cut corn acres. Informa estimates U. S. corn acres at 83.9 million, down 1.07 million from the last USDA estimate. Other traders say corn acres will be down as much as two million acres due to the delayed planting.

All of this suggests very strong corn prices in 2009-10, with the market likely to see US$5/bu. at some point in the winter. This supplies a strong backdrop to Canadian barley. However, barley will still have to contend with large supplies, high production in 2009 and smaller livestock numbers. The result, though, will be a return to the $4/bu. level in Alberta and the possibility that in Manitoba prices could climb back to $4/bu. as well, as the high price of corn encourages greater demand for barley.

The wheat supply/demand numbers from USDA were also supportive for the market overall. For the U. S., it lowered the ending stocks modestly as it pegged 2008-09 at 669 million bushels, down from 697 million in its April forecast. It lowered 2009-10 to 637 million. The main reason was a smaller U. S. winter wheat crop at 1.502 billion bushels, down from 2008’s 1.868 billion bushels. Reduced acres and weather problems accounted for the decline.

USDA did not officially forecast the spring wheat crop, but the numbers suggest it was looking for an average crop. The delays in spring wheat seeding, though, suggest that yields will be down and that acres should also be reduced. As a result, the expectation is that 2009-10 U. S. wheat ending stocks will be even lower than this forecast. Some analysts are looking for them to be below 500 million bushels.

This would normally be very supportive for the market. However, it is being partially offset by the fact that USDA is looking for global wheat supplies to see a major increase and ending stocks in 2009-10 increase to 181.9 million tonnes from 158.1 million in 2008-09. However, this is not a sure thing and already we are seeing the Argentine wheat crop will be a disaster.

As Minneapol is spr ing wheat futures climb above the US$7/bu. level, it seems fairly certain that Canadian farmers will likely see their wheat bring at least C$8-$9/bu.

The durum outlook, though, remains muted, as the world’s major buyers in North Africa seem to be having a fairly good crop.

Overall, 2009-10 looks like it will be a profitable year for grains and oilseeds and the possibility exists that it could be very profitable.

– 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.

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