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Mood In Grains Cautiously Upbeat

For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca

Grain and oilseed futures at ICE Futures Canada in Winnipeg closed the week ended Feb. 27 mainly lower on sluggish demand. Canola saw moderate declines despite the fact that the U. S. soy complex was higher and the Canadian dollar was lower. A drop-off in fresh demand and bearish technical signals prompted much of the weakness in the market. Exporters and crushers accounted for the bulk of the buying while the selling was comprised of speculative offerings and steady elevator company selling. Companies are being forced to keep premiums on for canola as farmer selling remains disciplined. Western barley futures declined mainly on sluggish domestic demand and rising supplies of barley in Western Canada. Trade was moderate and mainly commercially dominated. There was little fresh news to drive either canola or barley.

Chicago corn and soybean futures were steady to mainly higher. Soybeans saw strength in the old crop during the week on expectations for strong demand to draw down ending stocks. However, new-crop soybeans declined on expectations for larger U. S. production and rising ending stocks levels. Corn futures were virtually unchanged during the week. Continued good demand and slow farmer selling gave support, as did ideas that U. S. corn acres will still not be high enough to keep corn supplies from dropping in 2009-10 despite lower demand. Limiting the upside in the market were the economic gloom and continued problems for ethanol producers.

U. S. wheat futures were mixed, with Chicago and Kansas City wheat markets lower on slow demand amid a lack of fresh news. Minneapolis wheat futures posted small gains on stronger demand for high-quality wheats.

Across both the U. S. and the Winnipeg grain/oilseed futures markets, there was notable caution and uncertainty caused by the negative signals coming from outside markets, as the U. S. stock markets dropped to 12-year lows and the U. S. dollar rallied. Moves by the Obama administration to bolster the financial stability of the U. S. were felt to be ineffective and yet more U. S. bank problems appeared.

PREMIUMS MAY NOT LAST

An interesting development this week in canola was the move to historically tight levels of canola in cash markets, as demand continues at a record pace and farmer selling, while up, is not mirroring demand.

The Canadian Grain Commission has pegged canola supplies in commercial hands as of Feb. 22 at 884,700 tonnes, down from 1.319 million tonnes at the same time last year. Farmer deliveries to date are 6.32 million tonnes, up from 5.65 million tonnes last year. Exports are 4.042 million tonnes, up from last year’s 3.185 million tonnes. Domestic use was pegged at 2.536 million tonnes, up from 2.344 million tonnes last year as the crush pace for the year is still above 90 per cent of capacity.

What this means for farmers is

that the premiums we have seen in the marketplace will continue into the spring, but my expectation is that we may start to see this premium decline in the April/ May time frame and maybe completely be eliminated by June/ July as the new crop is seeded and farmers need to make space for the new canola crop. Producers should be working this factor into their marketing strategies.

This past week two closely watched crop forecast meetings occurred: the Canadian Wheat Board’s GrainWorld in Winnipeg and the USDA Agricultural Outlook Forum in Washington. While the meetings both suggested significant price fluctuations in various crops for the 2009-10 crop year, there was a notable although muted optimism at the meetings, with both hearing that agriculture is well positioned amid the current economic problems.

The optimism was understandably restrained by the current economic gloom and last week’s disappointing economic performances. However, there was an underlying mood that agriculture will do well.

The biggest disappointment for Canadian farmers at the agricultural outlooks in both countries was the general consensus that oilseeds will do poorly next year, unless an unexpected weather problem develops.

In Winnipeg, the consensus was that canola acres will hold up in 2009 and production will be large once again. The feeling was that demand will likely not be as big in 2009-10 and ending stocks will remain quite high.

The U. S. outlook also proved to be bearish for soybeans, predicting larger production and rising supplies. USDA pegged acreage at a record 77 million, up 1.3 million from last year. Given average production, 2009-10 U. S. soybean ending stocks will rise to 380 million bushels, up 81 per cent from this year.

This would push soybean prices down to the $7-to $8-per-bushel level and weigh on canola. There was some talk that we will see canola farm gate prices below $8/bu. in 2009-10.

FIRM, NOT BULLISH

However, the grain outlooks were a bit more upbeat at both meetings. Nothing is bullish this year, but firmness should be the order for the day.

USDA forecast that U. S. corn acres would be little changed this year and that production would hold steady around the 12.6-billion-bushel levels. However, demand will outstrip production and the ending stocks will be pulled down to tighter levels, which will support corn values.

This should spill over to support the barley market in Western Canada and we should see firm but not bullish prices in 2009-10.

For wheat, both the Canadian and U. S. outlook conferences suggested that things will be volatile and that the global crop in 2009 will be much smaller than the record 682-million-tonne crop of 2008. Both conferences were told that production should be enough to meet demand.

However, the Canadian Wheat Board summed it up best for wheat in its pool return outlook last week when it said that the wheat supply-demand balance remains “on a knife’s edge.”

In fact, for all grains and even for oilseeds, the feeling was that the world has not recharged supplies and production problems could turn the markets bullish. Another factor that will have to be watched is the prediction that, by late 2009, China could start to become a major importer.

– Don Bousquet is a well-known market analyst and president

of Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.

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