ICE Futures Canada canola contracts managed to move sharply higher during the week ended Aug. 27, but not before initially hitting their lowest levels of the past month. The losses, tied to improving production prospects in Western Canada, encouraged some end-user demand which eventually pulled values higher. Export sales to China were a primary driver taking values up, with new-crop uncertainty and speculative fund buying also providing support.
Over the next few weeks activity in the canola market will likely turn quite choppy, with harvest issues moving to the forefront. The canola harvest may be progressing in southern Manitoba, but it is still delayed in Saskatchewan and Alberta, and the threat of an early frost begins to loom large. Most market participants now anticipate a canola crop that was larger than earlier thought but will still be below the year-ago level. The relative supply tightness, coupled with expectations for solid demand – both from the export front and domestically – should necessitate keeping some kind of premium in canola in order to ration that demand.
However, that rationing could be more of a long-term process, and in the short term, harvest pressure will keep any gains in check. While a lot of canola will go into bins in hopes of seeing better prices down the road, canola is also one of the major cash flow crops out there and there will soon be plenty of supplies coming in from off field to keep the buyers well covered.
From a chart perspective, the most active November canola contract appears to have uncovered some solid support around the $440-per-tonne level. On the other side, values have been hard pressed to push above $470 per tonne over the past month.
Barley futures actually saw a few contracts trade during the week, with the strength likely spurred on by the developments in the global grain markets, although most of the activity in the commodity is still bypassing the futures. The Canadian Wheat Board announced that it was once again making some feed barley export sales, as international values above the domestic cash market are finally making that business feasible. How many more feed barley exports the CWB makes remains to be seen, but the return of an export market could conceivably help encourage some more participation in the fading futures.
In the U. S., soybeans were also supported by export demand and production uncertainty. Disease issues were starting to prop up in some U. S. soybean crops. Concerns about yield reductions, due to a lack of moisture, were also supportive. While the record-large production estimates are starting to be questioned, the demand remains large and could increase some more if the drought problems in the former Soviet Union lead to more demand for commodities such as soymeal.
Spillover from the Russian crop problems and U. S. production uncertainty were also a supportive influence in corn. However, that market ended narrowly mixed on the week. Profit-taking on the recent advances took values lower at one point, before the strong demand and ideas that U. S. yields may not be as large as originally thought came forward to provide support.
The new-crop production uncertainty could continue to provide soybeans and corn with some underlying strength in the near term, but the likelihood of record-large crops is still very much on the table. While the demand will also be there for those supplies, seasonal signals would point to some harvest-related pressure.
Profit-taking in wheat led to declines in most of the U. S. futures markets, with most of the Russian drought concerns said to be priced in for now. However, with weather forecasts remaining dry, the concern in Russia has turned to the fact that producers in the country may also be unable to plant their winter wheat crops, prolonging the supply tightness in the region.
The global wheat markets have seen a considerable shift over the past month or so, as it wasn’t too long ago that the common line was one of “abundant supplies” and only “steady demand.” While there is still enough wheat out there to meet the global need, that demand is now expected to outstrip the production, which will cut into ending stocks going forward.
A rising tide will float all boats, but Canada grew a smaller wheat crop of its own this year, which will lessen our role in the global markets vacated by Russia as well.
– Phil Franz-Warkentin writes for Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.
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