Canola futures on the ICE Futures Canada trading platform eased slightly during the week ended Sept. 10, with much of the downward price action linked to the Statistics Canada grain stocks in all positions report on Sept. 8 for the period ending July 31.
The numbers for canola were particularly bearish, with the government agency finding an extra one million tonnes of old-crop canola sitting on farms in Western Canada than the trade had been anticipating. Most had expected a number in the 1.1 million-to 1.355 million-tonne range, not 2.12 million, which happens to be the second highest on record after the 1999-00 season when supplies hit 2.2 million.
Canola futures had been on a slow but steady path toward $500, given that the 2010 growing season for canola has not exactly been spectacular in some areas of the Canadian Prairies.
Steady demand from the export and domestic sectors also benefited prices.
Wet weather during development and during the harvest, and the ever-increasing chance of frost damage as September rolls along, also were helping to influence price advances.
So instead of $500 being on the horizon, there are ideas that canola values are going to experience a setback as the market tries to absorb these extra supplies. The uptrend in the value of the Canadian dollar also throws a bit of a wrench into the plans and will help to slow any rebound in price.
There were concerns that canola futures, basis the November contract, could ease all the way back to the $410 to $415 per tonne range as a result of end users backing away from the market.
With the extra old-crop supply of canola available as a buffer, the importance of getting the new crop canola crop off is not as critical.
The $500 price level, however, shouldn’t be written off quite yet, as the lateness of the harvest and the increased chances of frost are still supportive influences in the market.
In fact, if the canola harvest was not being hampered/delayed by persistently cool/wet weather and instead the harvest was running along at a good or even normal clip, the bearish effect of the StatsCan report on the canola market likely would have been much more severe.
The smaller-than-anticipated yields due to the poor growing season and frost damage causing quality downgrades mean canola values will still push upward, albeit at a later than anticipated date.
The push back into the $480 to $490 range also may be short-lived, given that there is likely to be another big increase in Canadian canola acres in 2011. South American farmers are also expected to see another record-large soybean crop this fall for next year. The record U. S. soybean crop also will not do canola prices any favours.
Chicago Board of Trade (CBOT) soybean, corn and wheat futures all saw some pretty significant advances during the week. Weather issues in Canada that could cause downgrades to the wheat crop helped to underpin U. S. wheat values, as did the ongoing sentiment that global wheat output is on the decline.
U. S. corn values were pushed up by concern that yields for the crop in the major growing areas had slipped. The U. S. Department of Agriculture, in its Sept. 10 supply/demand report confirmed U. S. corn production would be lower because of the reduced yields.
Steady export demand from China provided soybeans with much of its upward price action.
The USDA supply/demand report didn’t exactly contain any major surprises, as the U. S. government agency reduced its corn output projection and its carryover estimates for U. S. corn, soybeans and wheat. A few eyebrows were raised however, by the 50-million-bushel jump in 2010 U. S. soybean production and the increase in the world wheat ending stocks estimate for 2010-11 from the August forecast.
The increase in global wheat carryout by three million tonnes seems contradictory, given recent weather-related production problems in the major wheat-producing areas of the world. Market participants as a result were now expecting some profit-taking on speculative long positions to occur in the wheat markets.
As for CBOT corn, there is plenty of room to speculate on U. S. corn yields below 160 bushels per acre. There may still be hidden damage from this summer’s above-normal temperatures and below-normal August precipitation. The risk is a carryover dropping toward 900 million bushels, which could result in CBOT corn values pushing toward and possibly above US$5 a bushel.
– Dwayne Klassen and Brent Harder write for Resource News International (RNI),
a Winnipeg company specializing in grain and commodity market reporting.
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