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Rained-out Saskatchewan canola fields support futures

Canola futures on the ICE Futures Canada trading platform strengthened during the week ended June 22, with gains spurred on by the weather issues in the U.S. Soybean Belt. Fresh Canadian canola export sales to China helped to influence the price advances, as did steady demand from the domestic processing sector.

Concern over flooded-out canola acreage in Saskatchewan provided some support, but the upside was later muted by the arrival of warmer and drier conditions on the Prairies. The improved weather was seen as beneficial to the development of the crop.

Although there were acres lost to canola because of the excess moisture and flooding, it was indicated that the amount of canola acres seeded will easily make up any area lost to the overly wet conditions.

The upside in canola was also slowed by the taking of profits by a variety of market participants. Elevator company hedge selling, tied to producers making room for new-crop supplies, also restricted the price strength in canola.

There continued to be little action in the barley and durum contracts on the ICE Futures Canada platform; however, we did finally see some milling wheat contracts trade at higher price levels. Very little was known about what actually transpired, but it appears that most of the action was commercial related.

Chicago Board of Trade (CBOT) soybean futures posted some significant advances. Most of that buying was related to the absence of precipitation in the main growing regions of the U.S. Soybean Belt. Longer-range weather outlooks, calling for an extended period of hot and dry conditions, also influenced some major upward price action. The dryness issue is occurring during a critical stage of development for U.S. soybeans.

Chart-related buying helped amplify the price gains in soybeans, as did continued export demand from China.

Chicago corn values also experienced advances with the dry growing conditions sparking the price gains. The tight supplies of old-crop corn added to the strength, but the potential for a smaller new-crop supply base really sparked the upward price move. The upside in corn was capped by the absence of fresh export demand and ideas that the commodity has priced itself out of the feed market, with wheat being the main beneficiary.

Wheat futures at the three U.S. exchanges posted some decent to sharp advances during the latest week. A lot of the price strength reflected the upward price push seen in corn. However, the commodity did manage to find some individual support from the tightening world wheat supply situation.

The tight global supply of wheat is being spurred on by continued dry growing conditions in some of the major wheat-producing countries, such as Australia, China and the former Soviet Union. Those concerns, in fact, managed to trigger some fresh export demand for U.S. wheat. Some concerns about the excessive moisture in the northern-tier U.S. spring wheat-growing areas also offered support.

The upside in wheat, however, was tempered by the advancing U.S. winter wheat harvest and continued indications of better-than-anticipated yields.

Distractions on deck

While weather will continue to be the dominant force in the North American grain and oilseed sectors in the near term, acreage estimates in Canada and the U.S. will provide some distraction.

Statistics Canada is up first, providing an updated planting intentions report on June 27. The report will certainly contain estimates for all the crops, but the amount of canola seeded this spring will likely garner the most attention.

The general consensus among industry participants is that canola acreage in Canada will be higher than the government survey showed back in April. In April, StatsCan pegged canola plantings in 2012 at 20.372 million acres, which was significantly above the year-ago level of 18.862 million.

Estimates for the June 27 report put Canada’s canola-seeded area in the 21-million- to 22-million-acre range.

That kind of acreage will produce an extremely large crop of canola for the industry to work with. In talking to producers, we hear some indicating they haven’t seen such lush and thick fields of canola in quite some time.

The U.S. Department of Agriculture, meanwhile, will release its acreage outlook for U.S. crops on June 29. A lot of participants expect the area seeded to soybeans to be well up from earlier ideas.

The thinking is that with the U.S. winter wheat harvest already well underway, producers will be able to easily double crop soybeans.

However, the problem with that thinking may be the dry conditions that also exist in the areas where producers who harvest their winter wheat early would plant soybeans.

Sentiment among some participants is that unless some significant moisture is received in those areas, and soon, the likelihood of farmers taking a chance with double cropping soybeans will be reduced dramatically.

This then creates the problem of the USDA report, not taking this development into consideration, which then leaves the soybean-planting estimate too high.

Finally, some quick thoughts on durum: global prices for durum have taken a bit of a nosedive as of late, which does not look as promising for Canadian durum values.

Much of the weakness to date has been tied to the ongoing durum harvest in Spain, Italy and France. Spain was believed to be the only region in which dryness has reduced the yield potential. Demand for durum from Algeria and Tunisia was seen declining but Morocco was expected to remain a large importer.

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