ICE Futures Canada canola contracts bounced around in a narrow range during the first trading week of the new year, but finished a little weaker than they were to end 2010 as some profit-taking came forward to weigh on values.
In the U.S., soybeans, corn and wheat also saw a similar pattern to start the year, with all three markets seeing some consolidation and taking a breather after their recent advances.
Rebalancing of positions by the speculative funds was a feature, putting downward pressure on the grain and oilseed markets. However, the fundamentals generally remain supportive and most analysts are still calling for further strength heading into the spring.
The attention now, both in Canada and the U.S., is starting to turn to 2011 seeding ideas, and the strength of nearly every commodity could lead to an interesting fight for acres.
A piece of the puzzle will come with the release of the U.S. Department of Agriculture’s latest crop reports on Jan. 12, which will include updated production and stocks estimates for the U.S., along with global supply/demand tables.
As is always the case, the numbers will either meet trade expectations or will contain some surprises. With so many numbers coming out, wheat, corn and soybeans all have their own issues that will be watched in the report. Canola traders will also be taking some direction from the U.S. data.
Corn supply projections could be trimmed from earlier estimates due to the poor U.S. harvest conditions, together with the solid global demand that has so far been running ahead of expectations. Traders are also generally anticipating some bullish news for soybeans, with expectations for tightening stock projections there as well.
The USDA reports will also include the first official estimates of U.S. winter wheat seedings. Average market forecasts call for an increase in area to 40.9 million acres, from 37.4 million the previous year. However, much of that planted area remains dry and may have troubles with emergence.
With most expectations for a bullish USDA report, a neutral or bearish reading of the numbers could lead to a bit of a profit-taking sell-off in the commodities. However, with the bullish sentiment as strong as it is, any failure to meet those expectations may be quickly downplayed.
Looking past the USDA reports, the focus in the grain markets for the time being remains the weather situation in South America. The basic equation for now is that rain in Argentina will equal a downturn in prices, while persistent dryness in the key soybean-and corn-growing country will keep the overall bias to the upside. Forecasts are turning a little wetter in the region, but some damage may have already been done to yields.
“SEA OF YELLOW”
Closer to home, the strong Canadian dollar and declining crush margins may temper some of the upside potential in canola. The currency is sitting well above parity with its U.S. counterpart, and by most accounts could be expected to stay there for a while.
The annual Crop Production Week in Saskatoon, taking place Jan. 8 to 15, often provides the first major indication of ideas heading into the spring, with the commercials coming out with some of their forward pricing options. High prices and ease of production point to a “sea of yellow” across Western Canada, provided the weather co-operates, but most every other crop has the potential to be a contender as well.
In recent years the uncertainty in the grain markets has caused the buyers to keep their cards closer to their chest this early on, but the general bullishness this year could lead to some interesting opportunities.
Phil Franz-Warkentin and Brent Harder