For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oi l s e e d prices at ICE Futures Canada in Winnipeg closed the week ended Oct. 2 mixed, with canola down moderately in the wake of losses in the Chicago soy complex, the advancing harvest, ideas of a large canola crop and slower demand from the crushing sector. Speculators were also selling this past week as technical signals turned bearish. The market hit its lowest level in a year. Farmer selling was steady, mainly against forward and basis contracts. With cash bids below $7.50 a bushel, non-contracted farmer selling slowed. Western barley edged a bit higher as farmer selling was very slow. Cash dealers feel farmers are going to lock away their barley and wait for the traditional winter rally in prices.
Chicago futures ended steady in corn and moderately lower in soybeans. Soybeans we re undermined by the lack of a frost threat against the crop and ideas the crop will be large. However, demand is still moving at an aggressive pace and that slowed the drop in prices. News that Brazil has run out of soybeans for its domestic crushing industry also gave support on ideas it will be buying U. S. soybeans. Corn futures were virtually unchanged on the week as the crop is still vulnerable to frost. Continued strong demand also gave support , with ideas that the corn crop will be record large hanging over values.
U. S. wheat futures declined this week with the large global and U. S. wheat supplies and sluggish demand for U. S. wheat weighing on prices. It should be noted, though, that in the face of all the bearish news, the wheat market is still $1 per bushel above the 30-year average price.
This week there were two major reports that influenced the markets. In Canada it was the Statistics Canada crop production report, while in the U. S. it was the quarterly grain stocks report and small grain production report.
The Canadian report came in as expected, but did contain some interesting information. As expected, StatsCan showed a larger crop than in its September crop report. Traders feel that the crops have only gotten bigger since the survey was taken and that the December StatsCan report will give a more accurate assessment of crop size.
The number everyone was watching was canola, which came in at 10.269 million tonnes, up from the last report’s 9.5 million tonnes. Traders are still convinced that the ultimate number will be 11 million tonnes, while JoAnne Buth of the Canola Council of Canada has stated it will be over 11 million tonnes.
While this is much larger than originally expected, it is not a bearish number, as demand will be able to absorb it. The export pace and the domestic crush pace both indicate demand
will be high enough to absorb the bigger supply and draw down canola ending stocks.
The current slower pace to the crush reflects problems crushers are having moving canola meal to the U. S. Salmonella in the canola meal has halted the exports from some plants and slowed the crush. Analysts do feel this will be resolved soon.
The overriding influence in canola will be from U. S. soybeans. Right now that crop is expected to have record-large production, with closely watched Informa Economics estimating the crop at 3.3 billion bushels. However, the pace of export and crush demand in the U. S. suggests that the soybean market will see a nice rally once harvest pressure declines, and that will help canola rebound.
For barley, oats and peas, the StatsCan report came in below expectation at 9.164 million tonnes for barley, 2.899 million tonnes for oats and 3.161 million tonnes for peas. Traders still feel these numbers will be revised higher in the December report, but are uncertain about how large these crops will ultimately be.
The other number that caught the trade by surprise was durum which came in at 5.066 million tonnes, up half a million tonnes from the September StatsCan report. The trade is looking for the final crop size to approach the 5.5-million-tonne level and that is way too much durum, given that the world has boosted its production as well.
Farmers with durum are likely to find that they will be storing a lot of it well into the 2010-11 crop year.
U. S. OBSERVATIONS
The U. S. Department of Agriculture issued several reports on Sept. 30 that, while not market moving in a big way, made some interesting observations on the crops.
For soybeans, USDA pegged the 2008-09 ending stocks at 138 million bushels, which was larger than traders expected, but was still well below last year’s 205 million bushels. This was no great surprise to the trade and certainly suggests soybean supplies in the U. S. are very tight and that a large crop will be utilized by the market. This is a reasonably supportive backdrop to the canola market.
For corn, USDA pegged 2008-09 ending stocks at 1.674 billion bushels, actually below trade expectations and very close to last year’s 1.624 billion bushels. The expectation is that we will see a 2009 corn crop of 13.3 billion bushels, according to Informa Economics. However, analysts have noted that demand is running at high levels and the market may use all these supplies.
There is increasing talk of China coming back into the U. S. market for corn this year because of drought problems. This could send corn back to the $4/bu. level very quickly. At worst, corn prices look like they will rally back to the $3.75/bu. level this winter.
For wheat, USDA pegged the Sept. 1 supply at 2.215 billion bushels, which was higher than traders expected and is well ahead of September 2008’s 1.858 billion bushels. USDA also forecast total 2009 U. S. wheat production at 2.2 billion bushels, with a smaller U. S. winter wheat crop offset by larger product ion of U. S. spring wheat and durum.
This just confirms the weakness we have seen in the wheat markets with new contract lows. We need to see prices drop low enough to attract in export demand. Once that happens, the declining global wheat acreage will help to take prices back up, though not to the highs we have seen.
– Don Bousquet is a well-known market analyst
and president of Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.