Canola futures at ICE Futures Canada were higher during the week ended Nov. 8, continuing the steady climb that’s been in place since the beginning of October, and going back to June in the monthly charts. While underlying concerns about the size of the Canadian canola crop remain supportive overall, the gains this week were largely tied to fund buying.
Growers are not selling all that much anymore, because of their general bullishness. While that restrained hedge pressure doesn’t hurt the upward trend in canola, the reluctant farmer sales are not necessarily behind the gains either.
In my own non-scientific poll of one producer, he said he was basically locking up the bins for the time being and would wait to make any further canola sales until the market starts to show some topping action.
I spoke with a broker this week who commented that “if you polled 100 growers, they would tell you the reason canola is up is because of the poor crops in Western Canada and the fact that there’s not a lot of canola around.” Farmers were waiting for much higher prices, he said, but will still be making some scale-up sales as opportunities present themselves. However, the broker added that those fundamental issues don’t really matter all that much right now, and the real reason canola keeps climbing is fund buying and the fact that canola needs to keep pace with other oilseed markets.
Western barley futures were steady to higher, although only a few contracts actually traded.
In the U.S., soybeans, wheat and corn were all higher, with the soy complex taking the lead during the week. Some of the activity in the U.S. markets was stemming from a decline in the U.S. dollar index and a move by investors into commodities as a hedge against inflation.
STARTING THE PRESSES
The U.S. Federal Reserve announced it would begin “quantitative easing,” which is basically a complicated way of saying they will start printing more money. The increased monetary supply effectively devalues the currency, but is intended to boost the economy by making funds more readily available.
A weaker U.S. currency makes commodities priced in U.S. dollars less expensive to foreign buyers.
The activity in the U.S. dollar did help the Canadian currency return to near parity during the week, but the strong loonie didn’t really slow the upward climb in canola. While the currency was at par with the U.S. dollar, it was actually lagging many of its other international counterparts.
Looking past some of the fund-and chart-related strength in canola, the seemingly unquenchable demand for oilseeds from China is another factor to keep an eye on. While issues with blackleg fungus remain unresolved with China, as far as canola is concerned, exporters are still selling as much as they can into the country and China remains the second-largest destination for Canadian canola exports behind Japan.
U.S. soybeans are currently moving to China at a record pace, leading to some concerns about tightening stocks. U.S. corn stocks could also see some tightening, although the demand side of the coin for corn is starting to soften as high prices cause some end-users to ration demand.
Corn could be a key driver in the grain and oilseed markets moving forward, especially as soybeans and corn are already locked in their annual battle for acres next spring. Corn futures are already trading above US$6 per bushel in many months and finished the week only slightly below that key level in the nearby December contract. A few years ago corn prices that high would have led to an exodus from the ethanol sector, where corn is a major feedstock. However, that doesn’t seem to be the case so far; the sector seems to be still making money even with these high input costs.
Wheat was up in sympathy with most everything else during the week, seeing some added support from concerns about dryness hurting U.S. winter wheat crops. While there is some more moisture returning to the forecasts, that precipitation may not be enough to actually alleviate those concerns.
– Phil Franz-Warkentin and Brent Harder write for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.
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