Rise in Canadian dollar pressures canola values

How a new CWB owner affects markets remains to be seen

ICE Futures Canada canola contracts dropped hard on Thursday (April 16) but managed to claw back some of those losses by Friday.

The old-crop May and July contracts were both lower on the week, as a strengthening Canadian dollar provided the catalyst for a round of fund selling. The currency climbed by over two cents relative to its U.S. counterpart during the week, which cuts into crush margins and makes exports less attractive to international buyers.

Canola did not stay down for long, as oversold price sentiment and spillover from the firmer tone in the CBOT (Chicago Board of Trade) soy complex provided some support. The old-crop months were well off their weekly lows by Friday, and the new-crop months were steady to slightly higher on the week.

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Some of that relative strength in the new-crop months is likely tied to the underlying uncertainty over the size of a crop that hasn’t even been seeded yet and the need to keep some weather premiums in the futures. With an early spring across the Prairies, seeding operations are also getting started a bit quicker than normal.

Statistics Canada releases its first survey-based acreage estimates on April 23. Opinions in the trade are divided over whether canola area will be up or down from the 20.3 million acres seeded in 2014, although average guesses call for a slight increase, just given the fact that much of the land flooded out in Saskatchewan in recent years should be back in production.

Great expectations

In the U.S., soybeans moved higher during the week, with soymeal pulling the rest of the soy complex higher as demand remains solid for the livestock feed. However, any upside may be limited in soybeans, with big South American crops starting to become a larger factor in the international market and expectations mounting for a big U.S. crop as well.

Corn found some modest support from seeding delays in parts of the southern U.S. However, planting conditions were good in other areas, and the moisture slowing operations in some cases will also be good for yields in the long run.

Wheat was down across the board during the week, with the Kansas City and Minneapolis hard wheat contracts hitting fresh lows. For winter wheat, some much-needed rainfall across the southern Plains should help improve the condition ratings for the crops there. Meanwhile, weather in the northern-tier states was good for seeding the spring wheat crop, with planting operations running well ahead of normal.

The big news from a Canadian wheat standpoint during the week was the announcement that the former Canadian Wheat Board (now known simply as CWB) is to be purchased by the newly created G3 Global Grain Group. G3, a joint venture between Bunge Canada and Saudi Arabia’s SALIC Canada, will buy 50.1 per cent of the company for $250 million, with the minority stake going to farmers who deliver to CWB. However, G3 has the option to buy out that farmer equity in seven years’ time.

There will obviously be some heated ideological debates over the details of the CWB sale to foreign interests. However, from a marketing perspective, whether any new ownership leads to a significant change in grain pricing in the Prairie landscape remains to be seen.

The corporate and government line was that the creation of a new company would be “a win” for farmers, bringing in more competition for their grain. While more competition can’t hurt, it’s also worth noting that the G3 deal doesn’t include any new infrastructure (aside from the previously announced CWB terminals already being built). Rather, it’s more of a reshuffling of what’s already there.

About the author

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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