Canola futures on the ICE Futures Canada trading platform experienced a minor push to the downside during the week ended Sept. 9. Declines were influenced by the favourable weather for harvest operations, particularly in Saskatchewan and Manitoba, and indications that some monstrous canola yields were being achieved.
The larger-than-expected supply of canola in commercial and on-farm, as shown in the Statistics Canada stocks survey released Sept. 7, also had bearish price overtures for the commodity. Weakness in the U.S. soybean complex during the reporting period also added to the price drop.
The declines in canola, however, were offset by the surfacing of some fresh export business and by steady domestic processor demand. Crush margins were said to again be at very profitable levels. The downturn in the value of the Canadian dollar also provided a firm floor for canola.
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After experiencing some good activity the previous week, western barley future contracts again went back into hibernation. Some strength in the cash market helped the nearby October future to strengthen slightly. Cash bids for feed barley have been holding firm in anticipation of there being less feed barley harvested this fall. A good portion of the barley harvested to date has been of high quality, with a significant amount grading as malt.
Chicago Board of Trade (CBOT) soybean futures posted losses during the week ended Sept. 9. Bearish macroeconomic issues again surfaced, helping to influence some of the price weakness. The resulting jump in the value of the U.S. dollar, which further reduces export demand for the commodity, added to the downward slide.
Some of the weakness in soybeans also came on ideas that the anticipated decline in U.S. soybean output has been factored into the market.
CBOT corn futures were narrowly mixed on the week, with the nearby months seeing small losses, while the far deferred contracts moved slightly higher. Absence of fresh demand from the export and domestic feed sectors influenced the downward price action seen in the commodity. Here too, some selling was also tied to the fact the cut in U.S. corn production expected in the U.S. Department of Agriculture s report has been factored into the market already.
The drop in demand for corn as a feed was linked to sentiment that the commodity is too expensive for end-users.
Wheat futures at the CBOT, Kansas City and Minneapolis exchanges all suffered some significant price declines during the reporting period. The cheap availability of wheat from the Black Sea region encouraged a good portion of the selling interest. Global economic concerns helped to push values down, with the climb in the value of the U.S. dollar further cutting off demand for the commodity. Higher-than-expected wheat supplies in Canada, as revealed by Statistics Canada s stocks survey, also had some bearish price implications for U.S. wheat futures.
Saving wheat values from dropping too far was the decision by feedlots to switch to the crop from corn for their livestock needs.
The USDA report, released early Sept. 12, raised a few eyebrows and did have some implications for corn. U.S. corn growers are now expected to produce just 12.497 billion bushels of corn, a 417 million-bushel drop from what USDA was forecasting a month ago.
With less corn being produced, USDA also lowered its forecast for ending stocks to 672 million bushels, down from last month s prediction of 714 million bushels.
On the demand side, there is less of it amid very high prices. USDA cut its forecasts for both corn exports and consumption by the ethanol industry. The U.S. is now expected to export just 1.65 billion bushels, down from the August forecast of 1.75 billion.
For wheat, USDA raised its 2011-12 marketing year ending stocks forecast to 761 million bushels, up from the August prediction of 671 million bushels. There is less than expected demand from the domestic food industry for wheat, and weakening international demand has lowered USDA s wheat export prediction.
USDA left its forecast for wheat production unchanged at 2.077 billion bushels, but raised its prediction for soybean production by 29 million bushels. The new USDA forecast for U.S. soybean production is 3.085 billion bushels, up from the August prediction of 3.056 billion bushels.
The Statistics Canada July 31 stocks survey released Sept. 7 certainly raised a few eyebrows by putting Canadian canola supplies in 2010- 11 at 1.828 million tonnes, especially when the trade was expecting a much tighter number in the 700,000-to 1.3 million-tonne range. The government agency acknowledged it underestimated 2010 production and in turn made an upward adjustment. However, even with this correction, industry participants still expect a further correction to the upside in that number in future updates.
Combine the large 2010-11 canola carryout with industry ideas that canola output in Canada will top 14 million tonnes in 2011-12, and the potential of any major uptrend in values seems limited, even if demand from the domestic and export sectors remains strong.
The macroeconomic issues that continue to rattle the commodity markets are not likely to disappear anytime soon and will remain a factor in the months ahead. Investors will flee from risky assets every time there is some discouraging news regarding the Euro-zone debt situation, or when there are signs the U.S. economy is suffering from further melancholy.
The possibility of a Greek default continues and the fears over its potential impact on Europe s banks will remain at the forefront of investor concerns. The resignation of a European Central Bank chief economist on Sept. 9 has sparked fresh concerns over whether policy-makers will succeed in taming the situation.
As a result, there is fear that a Greek default is growing more likely, and without a credible policy to limit its spread, Europe could be pulled back into a financial crisis similar to the one in 2008.
Dwayne Klassen and Phil Franz-Warkentin write for Commodity News Service Canada, a Winnipeg
company specializing in grain and commodity market reporting.