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ICE Futures Canada canola contracts bounced around within a narrow range during the week ended June 4, ending with small gains in the nearby July contract, but losses in the new-crop months. Weather worries grew across the Prairies, providing some underlying support. However, position-evening and profit-taking came forward keeping values within a tight range. A lack of significant demand and losses in CBOT soybeans also weighed on canola prices.
Canola appears to face some conflicting market signals heading into the summer, and those competing influences could cancel each other out to keep values relatively range-bound.
On a drive south of Winnipeg in the wake of some of the most recent rainfall, those competing influences were fairly easy to see. While the stretch of highway between Winnipeg and Morden provides only a small glimpse of the greater western Canadian picture, the view from my car window seems to correlate with the reports coming in from across the Prairies – the common refrain being that the wet
weather has caused seeding delays for the last of the crops and likely localized flood damage. However, those concerns are usually followed by sentiments that the crops will still turn out good overall and production will be large.
Driving outside of Winnipeg, the land that isn’t still black was greening up nicely, but high moisture levels meant the ditches were fuller than they were during the height of the spring flooding season. Standing water was also fairly easy to spot on many of the fields, and will cause problems if it persists. The question now is, how long will it take for those fields with standing water to drain away, and will those fields need to be reseeded? From the provincial reports and weather forecasts, that same question is currently being asked across Western Canada.
Uncertainty and the resulting wagers on how things will actually play out are what futures markets are made of. Right now, canola has the potential to develop a risk premium based on the weather uncertainty, especially as farmers across the Prairies look at their wet fields and make the decision to hold off on sales until they get a better handle on production.
That uncertainty was also being felt in the U. S. markets during the week. For the most part U. S. crop conditions are great, and the bearish weather had soybeans, corn and wheat all pointed lower during the week.
The largest losses were in corn and wheat, as the U. S. winter wheat harvest started to move forward in the southern states and the corn crop was all in the ground and experiencing improved condition ratings. Soybeans were also down on the relatively good weather, with the strong U. S. dollar and movements in the global financial markets also weighing on values. However, about a quarter of the intended U. S. soybean crop was still waiting to be planted to start the week, and concerns that any precipitation in the forecasts could delay some of those acres from going in the ground provided some support.
From a chart perspective, all three U. S. markets could be considered oversold and due for a short-covering bounce higher, although it will likely take a more significant change in the fundamental outlooks to sustain any rally.
While not directly linked to the agricultural markets, the ongoing oil leak and ecological disaster in the Gulf of Mexico could prove to have far-reaching effects on the agriculture sector, both in North America and around the world.
For starters, the Gulf represents a major shipping area for Midwestern grains and oilseeds that move down the Mississippi to be exported. Shipping channels are not yet expected to be shut down completely, but disruptions to normal movement could be expected as the cleanup effort picks up steam.
The Gulf coast is also a major producer of nitrogen fertilizer, and disruptions in the shipping lanes would also alter the flow of fertilizer from the region.
The oil leak is already leading to talk of increased demand for biofuels, as an alternative to offshore drilling. The U. S. has suspended oil exploration efforts in the Gulf of Mexico and the mounting public outcry against the practices that led to the disaster should have consumers looking for other energy options, all of which bode well for grain and oilseed prices.
The oil leak is really unfathomable in its size and scope, the fallout of which we will be hearing about for years to come as the cleanup could take decades. Farmers, problem solvers by nature, could play a role in those efforts. I saw an interesting Internet video over the past week with a couple of U. S. farmers touting the use of hay to sop up the oil. They make a convincing case in their video.
To bring it closer to Western Canada, I also read an article on cleaning up birds covered in oil, in which the birds were first cleaned with canola oil to help break up the dirtier crude oil before undertaking the rest of the cleaning process.
– Phil Franz-Warkentin and Dwayne Klassen write for Resource News International (RNI), a
Winnipeg company specializing in grain and commodity market reporting.