New-crop concerns loom large over old-crop canola

ICE Futures Canada canola contracts moved higher during the week ended April 19, with the largest gains coming in the old-crop months.

Those gains nearby may be tied to the tightening supplies in Western Canada, but have as much to do with new-crop perceptions as anything else. Nobody is writing the crop off just yet, as farmers will make short work of spring seeding given the chance, but the slow spring melt will push the start date back in many areas. The later the seed is in the ground, the later it will be harvested in the fall. With exporters and domestic crushers already expected to be scraping the bottom of the barrel this year, the likelihood of a longer wait before new-crop canola hits the pipeline is heightening the need to ration what there is available.

Provided the Statistics Canada production numbers for last year are at least semi-accurate, the current pace of exports and domestic crush cannot possibly be maintained. Even if actual production was a couple of hundred thousand tonnes larger (as some industry participants have theorized), it will take considerably more than whatever fell through the cracks to meet the current demand. This tightening supply situation should keep nearby prices well supported heading into the summer. However, the interconnected nature of the wider markets means losses in soybeans or other broader economic issues could still cause canola prices to decline — just at a slower rate than everything else.

On the charts, old-crop July canola finished the week at its highest levels since September, while new-crop November was more range-bound and barely at its highs for the month. Statistics Canada releases its first official acreage estimates of the year on April 24. Any numbers will be quickly second-guessed due to weather issues that have popped up since the survey was conducted, but the second-guessing should provide some fodder off of which the new-crop contracts may trade.

Weather issues are also a factor in U.S. grains and oilseeds, but the impact of the late spring melt is a little more mixed south of the border. In the U.S., the annual battle for acres pitting corn against soybeans will be a contributing factor moving the futures over the next few weeks.

Corn needs a longer growing season and is typically planted first. If it’s too wet for too long, some of that area originally intended for corn might end up with soybeans instead. While other issues, such as seed supply, will limit any acreage shifts, the idea is enough to be bullish for corn but bearish for soybeans.

Over the past week, new-crop soybean prices moved lower while the front months posted small gains on the back of the tight supply situation. In corn, values were down across the board, but the larger losses were nearby. Wheat futures in Chicago bounced around within a narrow range, but ended lower overall. Wheat in Kansas City was also lower, but spring wheat in Minneapolis managed to move higher, with adverse planting conditions in northern-tier U.S. states behind some of that strength.

The advancing South American soybean and corn harvests are starting to take some of the heat off the tight U.S. supply situation, but logistic issues in Brazil should keep some export interest in the U.S. until soybeans start flowing more freely from the region.

Overhanging all agricultural markets are persistent global economic issues. The Canadian currency dropped by over a penny relative to its U.S. counterpart over the past week, which was relatively supportive for canola. However, that economic uncertainty which weighed on the currency does not bode well for end-user demand in the long run.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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