Phil-Franz Warkentin CNSC
The ICE Futures Canada canola market saw some wide price swings during the week ended Sept. 30, finishing with declines after testing downside resistance on a number of occasions.
On the whole, the bearish factors in the market outweigh anything supportive, but a short-covering bounce does remain a possibility going forward.
The canola harvest is virtually complete in Manitoba and in its final stages in Saskatchewan and Alberta. While there were areas of concern, the general sense through the harvest has been that production was better than expected and the country will have a large amount of relatively good-quality canola to deal with this year. Those large supplies likely mean the highs in the market are in for the time being, but reluctant farmer selling, as producers shut their bins post-harvest, could temper the downside potential.
The global economic uncertainty is another bearish influence overhanging the agricultural markets in general, causing some export buyers to show more caution. The financial concerns were also causing speculators to bail out
of riskier investments, including the agriculture markets, in favour of safe havens. While the argument can be made that Everyone still needs to eat, which should keep grains and oilseeds supported despite an economic slowdown, that speculative money typically ignores the larger fundamentals.
However, that economic uncertainty has also weighed heavily on the Canadian dollar recently, and the weaker currency is helping canola hold some ground compared to the U.S. soy complex. The combination of the declining currency and the lower futures prices also encouraged some new export business during the week.
From a chart perspective, a break below the $525-per-tonne level in the November contract on Friday could set the stage for further losses, with the $500 level a nearby downside target, but $400 a possibility on the weekly charts.
In other canola news, the U.S. Environment Protection Agency has now approved the use of Canadian canola for the production of biofuels in the U.S. The biodiesel market opens up another demand stream for Canada s canola crop, which should at least provide a solid floor for prices.
Barley futures did see a little activity during the week, although most of the trade was tied to participants exiting the nearby October contract. Prices on the cash side have shown some strength recently, as a good-quality harvest has many potential sellers holding out for the malt market.
In Chicago, soybeans, corn and wheat all posted declines, with a fair bit of the selling coming Friday on the release of the U.S. Department of Agriculture s latest stocks report. The official data showed U.S. corn ending stocks of 1.13 billion bushels. While that s still historically tight, there was more corn around than the market had expected, which triggered the sell-off. Harvest pressure was also bearish for soybeans and corn, while wheat remained pointed down given the increased competition in the export market from Russia and Ukraine.
For soybeans, U.S. stocks were a little below expectations, which could provide some support, especially if production fails to meet expectations as the supply/demand outlook is still tight overall. However, any gains related to supply concerns are thought to be unlikely in the short term, as the U.S. soybean harvest picks up steam.
The lone bright spot in grains and oilseed futures during the week was in Minneapolis, where spring wheat prices moved higher in the front months. While Canada s wheat crop will likely see an upward revision in Statistics Canada s Oct. 4 report, reports out of North Dakota and Minnesota continue to point to disappointing production there.
The U.S. wheat market is also following the weather conditions for winter wheat seeding very closely, as excessive dryness in many areas doesn t bode well for next year s crop. Highlighting the dryness issue were reports out of Iowa during the week, in which farmers were halting soybean and corn harvest operations over fire concerns.
Dryness was also causing some concern for wheat crops in Argentina and Ukraine during the week.
Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.
For three-times-daily market reports from Commodity News Service Canada, visit ICE Futures Canada updates at www.manitobacooperator.ca.