Reports confirm expectations of tight canola supplies

The threat of tighter-than-anticipated supplies kept canola futures on the ICE Canada platform on a firm note during the week ended Oc. 19. Talk of fresh export demand and the general firmness of CBOT soybean futures also encouraged the price advances in canola.

Domestic processors also continued to be good buyers of canola during the week as they continue to stock up on supplies in order to meet sales commitments already on the books. The weakening of the Canadian dollar was also seen as conducive to stimulating some fresh end-user demand.

The upside in canola was restricted by the improved weather for the planting of the soybean crops in Argentina and Brazil. Cash bids on the Canadian Prairies have also seen some improvement which attracted farmer deliveries and in turn further tempered the upward price potential.

The larger-than-anticipated soybean harvest in the U.S. also prevented canola from posting significant advances.

The market analysis branch of Agriculture Canada during the week confirmed that supplies of canola in Canada at the end of the 2012-13 (Aug.-Jul.) crop year will indeed be extremely tight. Canola carry-over at the end of the current season was forecast at 450,000 tonnes. In September the government agency had been forecasting canola carry-over at 675,000 tonnes, but that was also based on ideas that production of the commodity would be in the 15.41-million-tonne range. Canola carry-over in Canada at the end of the 2011-12 season totalled 788,000 tonnes.

However, with Statistics Canada saying that canola output was only 13.359 million tonnes this summer the scramble to cover export and domestic commitments is on. With the tight ending stocks picture for canola comes a downgrading in those estimates.

Ag Canada had been anticipating that canola exports from Canada would be a record 8.8 million tonnes back in September, which would compare with the year-ago level when a record 8.7 million tonnes were shipped offshore. But with the lower output, Canada was only seen exporting 7.2 million tonnes of canola in 2012-13.

The domestic usage forecast didn’t take as large a hit as the export projection, but it was also adjusted downwards. Ag Canada is now expecting that 6.623 million tonnes of canola will be processed domestically, down from the 6.847 million estimated back in September and well below the record 7.315 million processed in 2011-12.

With the lower Canadian canola production forecast, market participants definitely had visions of strong values moving forward. However, while canola should be able to hold some kind of premium, the upside continues to be limited by the fact alternative oilseeds, that can be purchased cheaper, remain readily available.

Wheat contracts languish

Very little activity occurred in the milling wheat, durum and barley contracts on the ICE Canada platform during the week. Much of the price movement seen in milling wheat came at the hands of the exchange arbitraging values in order to keep pace with the U.S. wheat markets.

The new barley contract has not seen any actual trades since September.

Soybean futures at the CBOT pushed higher during the week with continued strong demand from the domestic and export sectors behind some of the strength. Ongoing concerns that supplies of the commodity continue to be on the tight side, also influenced some of the price strength. The U.S. soybean harvest pace also slowed somewhat, which in turn provided an opportunity for values to move up. Chart-related speculative and commodity fund demand also provided some support.

The upturn in soybean futures was restricted by the improved weather for the anticipated record area that will be planted in South America in the near future.

Corn futures on the CBOT managed to post minor gains during the reporting period. Concerns about the tight supply outlook provided some minimal support with spillover strength from the advances seen in wheat and soybeans helping to fuel some of the upward price action.

The complete absence of fresh demand from end-users limited the ability of the commodity to move to higher ground.

Ukraine ban expected

Wheat futures on the CBOT, MGEX and KCBT experienced a push to the upside during the latest week, with some of that upward price action linked to values correcting after a series of declines. Some of the upward price action in U.S. wheat values also came from reports that Ukraine was running out of exportable wheat supplies and may have to institute a ban on movement offshore in the near future. There were ideas that the ban could occur as early as November.

If that does happen, industry participants are anticipating that demand for U.S. wheat will perk up and result in some much-needed sales being put on the books. Wheat exports from the Black Sea region generally have been made at a huge discount to U.S. wheat values, and with the export pace from that corner of the world slowing, there are ideas that prices have room to move to the upside.

Industry news out of Chicago this week was the fact that the CBOT was considering reducing its grain-trading hours. While the consideration is still very preliminary, market participants in Canada and the U.S. have already indicated a preference for a shorter workday.

The CBOT, which is owned by CME Group Inc., was expected to conduct a survey of market users regarding the trading hours in the very near future.

The CBOT expanded its electronic trading cycle to 21 hours a session from in May in reaction to a threat from rival IntercontinentalExchange Inc., which launched look‑alike corn, soy and wheat contracts.

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