Larger Economic Issues Weigh On Canola

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Canola futures on the ICE Futures Canada trading platform resumed a downward price trend during the week ended Oct. 21. Losses were attributed to the price declines experienced by CBOT (Chicago Board of Trade) soybeans and outright liquidation by speculative fund accounts. Elevator company hedge selling was also evident, especially when canola showed signs of staging a small price recovery.

Some of the fund selling was chart related, but also tied to the ongoing concerns about the euro-zone debt situation. Some felt the G-20 meeting on Oct. 22-23 will not result in an agreement being reached on the issue, despite claims to the contrary. The renewed push by the Canadian dollar toward parity with the U.S. currency was also an undermining price influence on canola.

Helping to keep canola futures from dropping too far were steady domestic crusher demand and confirmation of export business. China was said to have purchased at least two cargoes of Canadian canola during the week for an unspecified delivery date. China normally books 50,000-tonne vessels to move canola purchases from Canada s West Coast.

Western barley futures on the ICE Futures Canada platform remained in dormancy during the week. Cash bids for feed barley remained firm during the week, and given the amount of barley expected to grade as malt this year, values were seen climbing further still.

CBOT soybean futures suffered some fairly large declines during the week ended Oct. 21. The advancing harvest operations in the U.S., favourable conditions for the planting of the large South American soybean crop and bouts of profit-taking contributed to the price declines. The failure of China to purchase as much U.S. soybeans as the trade had been anticipating also allowed the prices to move to the downside.

Losses in soybeans were slowed by the refusal of U.S. farmers to deliver the commodity into the cash pipeline. Producers in the U.S. were said to be disillusioned by current cash bids and, instead of delivering, were putting their soybeans into storage.

CBOT corn futures posted some small advances. Gains were influenced by firmness in the cash market and by the net loss in the value of the U.S. dollar during the reporting period. Good demand from the export sector for U.S. corn also benefited prices. Most of the export interest came from China.

Favourable weather for advancement of harvest operations in the U.S., along with profit-taking, capped the upside potential in U.S. corn futures.

Wheat futures at the CBOT, Kansas City and Minneapolis exchanges were able to post advances during the reporting period. Dryness issues in the U.S. winter wheat belt and production losses in the northern-tier U.S. spring wheat belt generated much of the upward price momentum.

The strength in U.S. wheat values was restricted by the continued availability of cheap wheat supplies from the Black Sea region.

Uncertain futures

While it s far from certain that the government of Canada will be able to implement its plan to remove the monopoly powers of the Canadian Wheat Board by the start of the 2012-13 crop year on Aug. 1, 2012, ICE Futures Canada has plans to launch new milling wheat, durum and barley contracts on its exchange.

Reaction by market participants to the news has so far been extremely varied. Some have been quite excited about being able to finally trade milling wheat and durum contracts. However, others feel the legal battle between the federal government and supporters of the CWB are far from over, which will delay ICE s plans to launch such contracts.

Some concern was also expressed by brokers over the size of the wheat contracts, which will be 100 tonnes, instead of 20 tonnes.

Some acknowledged that ICE Futures Canada was only trying to make it less expensive for some participants to use the contract, but the liability of a larger future may keep the smaller players on the sidelines, assuming the larger participants are even interested in making the new contract liquid enough to trade.

Others were concerned that because the MGEX was unable to successfully make a durum contract work, the prospects at ICE Futures Canada were also not quite as bright as they could be.

The barley contract, which has seen so many changes over the past couple of years, was viewed by participants as finally being a potentially good future, but again the success will be solely dependent on commercials wanting to trade it.

A few participants pointed to the failure of the oat contract when it was removed from the CWB s grasp. It was not all that long before the Winnipeg Commodity Exchange delisted the future due to illiquidity and lack of trade. The commercial sector also did not want to publicly trade flaxseed, which was also eventually removed from trade at the WCE.

Canada, a Winnipeg company specializing in grain and commodity market reporting.

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For three-times-daily market reports from Commodity News Service Canada, visit ICE Futures Canada updates at www.manitobacooperator.ca.

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