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ICE Futures Canada canola contracts bounced around their well-established ranges during the week ended May 7, doing little to break out of the sideways pattern the market has been stuck in for months. Large moves in the outside currency, commodity, energy and equity markets weren’t enough to cause a serious shift in the canola market. The quest for fresh news to break canola out of that sideways pattern remained unfulfilled.
Narrowing basis levels in the country could be a sign that nearby supplies are on the tighter side, which could be supportive for prices. The wet weather that has caused some seeding delays for the new crop could also be seen as supportive, but the forecasts are turning warmer and the good moisture levels were being taken as bearish overall.
The Canadian dollar dropped sharply lower relative to its U. S. counterpart during the week, making canola look slightly more attractive to export customers pricing in U. S. dollars.
Large global events over the past few weeks, such as the volcano in Iceland, the oil leak in the Gulf of Mexico and the economic collapse in Greece were not yet causing any noticeable movement in canola, but their impact on the outside financial markets was expected to eventually come to play in canola. Aside from the outside price influences, weather conditions across Western Canada should remain the most likely trigger for movement in the canola market.
Western barley futures were untraded and unchanged once again, as most of the activity in barley has shifted itself to the western Canadian cash market.
In the U. S., the large fund presence meant the global financial unrest had a more direct impact on the futures.
Activity was the most bearish in soybeans, where the strong U. S. dollar weighed heavily on values. Large South American oilseed supplies, and the expectations for a record U. S. crop, added to the weaker tone in the market. Oversold price sentiments and some light short-covering limited the downside. The fact that there is still a long growing season ahead for the U. S. crop also helped keep some semblance of a risk premium in the market.
Corn futures were also pressured lower by relatively favourable U. S. crop prospects and the strength in the U. S. dollar. However, the losses in corn were much more subdued, as talk of increased export sales to China provided some underlying support. Confirmation of any additional Chinese business was still lacking, but weekly export sales data was definitely hinting that something may be up.
Wheat futures, surprisingly, were actually higher on the week. The gains came despite the generally bearish long-term fundamental outlook for wheat, and were most likely tied to short-covering.
MODERN GREEK RUINS
The big news overhanging all of the commodity markets during the week had very little to do with agriculture, but rather with the financial crisis hitting Greece.
In 2008-09 Canada exported 18,900 tonnes of wheat and durum to Greece, or about 0.1 per cent of our total wheat exports, according to Canadian Grain Commission data. If we sold any other grains or oilseeds to the country, the sales weren’t large enough to make it into the official numbers. Needless to say, Greece is not a major player in Canadian agricultural markets.
However, like the butterfly flapping its wings and causing tornadoes half a world away, the economic unrest in Greece is creating far-reaching problems in the global financial and commodity markets.
The gist of the problem is that Greece has got itself into some serious debt. Some of its wealthier European counterparts, most notably Germany, have come forward with a bailout package, but those billions of bailout dollars may not be enough to save the day. The concern now is that the debt problems in Greece are starting to snowball to the point where other countries, including Portugal, Spain and Italy, will soon be facing similarly dire straits. There can only be so much bailout money to go around and the end result is a serious economic setback for all of Europe. From there it spreads out to create problems for North America.
In addition to the likelihood of reduced demand for commodities in general, that uncertainty also has had large speculative investors backing away from riskier assets in favour of “safe havens” such as U. S. dollars. Agricultural commodities get caught up in those broad moves, and move lower.
Canadian economic data is still coming in looking reasonably favourable, and financial analysts appear to remain of the opinion that country’s economy is on the upswing. Those sentiments should provide somewhat of a cushion for the western Canadian agricultural sector from the larger international financial movements. However, the fact remains that Canada is but one player in the larger scheme of things – and any disruptions to the global flow of trade eventually work their way back to each of us, in one form or another.
– Phil Franz-Warkentin and Dwayne Klassen write for Resource News International (RNI), a
Winnipeg company specializing in grain and commodity market reporting.