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ICE Futures Canada canola contracts moved lower during the week ended March 5, with much of the weakness tied to the strength of the Canadian dollar. The currency rose by two cents relative to its U. S. counterpart during the week, cutting into crush margins and making Canadian canola that much less attractive to any export buyers. Expectations for increased canola acres this spring, as canola remains one of the few crops that have the potential to be halfway profitable, added to the weaker tone overall.
Canola also found some glimmer of hope from talk during the week that China was making its way back into the Canadian market. While the smoke may not yet be coming from a full-on fire, the fact that people are talking of a return of Chinese business should be seen as supportive. Pakistan was also said to be buying Canadian canola recently.
Western barley futures continued their downward slide during the week, as a lack of demand and ample competing feed ingredients kept the thinly traded market pointing lower. However, there were some ideas that barley futures were looking a little oversold, which may have tempered the downside.
In Chicago the futures were also weaker. Soybeans and corn both bounced around within rather well-established ranges during the week, although bearish technical signals and expectations for large South American crops put the bias to the downside. Soybeans were also pressured by ideas that U. S. soybean acres will be up in 2010, as an excessively wet winter across the U. S. Midwest could delay corn plantings and force more acres into soybeans. However, soyoil managed to move higher, finding some support from the gains in crude oil. The strength in soyoil helped limit the declines in soybeans.
U. S. wheat futures were also choppy and range bound, but ultimately lower during the week. With no real fresh news, all three of the U. S. wheat markets appear set to continue bouncing around nearby levels until something comes forward to break them out of their rut.
While the wheat market may need to wait a little longer for some fresh news, soybeans, corn and canola will definitely be following developments out of South America closely.
“The record-large South American crops” is a phrase that continues to pop up, in one form or another, in any discussion of the markets. Traders were saying weeks ago that it was already too late for any adverse weather conditions to seriously harm the crops, and now that the harvest is progressing the sense seems to be that any minor hiccups in the weather are merely delaying the inevitable. In any case, the nearby forecasts remain relatively favour-able for harvest progress, and field work is already well underway in many areas.
TOUGH FOR OILSEEDS
The U. S. Department of Agriculture (USDA) releases updated world supply/demand tables on March 10. If the recent pattern holds, upward revisions to South American soybean and corn production can be expected. That would build on the already record-size production estimates.
Large South American soybean and corn supplies compete with North American oilseeds and grains in the global markets, and often at cheaper price levels.
In February the USDA forecast Brazil’s soybean crop at 66 million tons, while Argentina’s production was pegged at 53 million tons. That represents increases of nine million and 21 million tons respectively on the year.
Let that sink in a little: between Argentina and Brazil there will be 30 million more tons of soybeans to market this year. Their extra production amounts to almost as much as all the canola grown in Canada the past three years. Needless to say, oilseeds may have a tough time rallying in the upcoming year.
South American corn production isn’t forecast to be up by as much in 2010, but Brazil and Argentina will also be growing near-record-size crops, which will find their way into the export channels. Brazil’s corn crop was most recently pegged at 51 million tons, unchanged from the previous year. Argentina is expected to grow a 17.2-million-ton corn crop, up 4.6 million on the year.
Barring droughts or floods in future crops, agricultural officials in South America are calling for even larger production increases in the years ahead, citing improving cropping techniques and management, along with increased seeded acreage.
Inadequate infrastructure for moving grain and inefficient production methods have sometimes been put forward as detriments for the South American agriculture sector. However, the region has steadily moved away from those stereotypes and could easily be argued as the breadbasket of the world, supplanting North America.
A sign of the growth of South American agriculture can be found in a recent report put out by the Brazilian Motor Vehicles Manufacturers Association. The association said sales of farm vehicles in the country were up by 46 per cent in February 2010 compared to the previous year. The increasing demand was said to be stemming from a low-cost credit program provided by the government to help in machinery purchases.
On top of that, Case New Holland recently opened an industry complex in Brazil to produce agricultural equipment. For John Deere adherents, the company is also looking favour-ably at South America, estimating long-term growth of equipment purchases in Brazil at five per cent over the next 10 years, according to news reports.
– Phil Franz-Warkentin and Dwayne Klassen write for Resource News International (RNI), a Winnipeg company
specializing in grain and commodity market reporting.