Old-crop canola con-t racts on the ICE Futures Canada trading platform took it on the chin during the week ended April 15, suffering larger losses than the new-crop months.
The complete lack of buying interest resulted in the nearby May and July canola futures suffering some significant declines. Steady elevator company hedge selling, prompted by producers’ continued delivery of canola into the cash pipeline, helped to stimulate the downward price slide.
Another key influence behind the price losses in canola was the liquidation of positions by speculative and commodity fund accounts. Some of that selling was linked to bearish chart signals as well as to ongoing worries about the economic climate. The fact that there are ample oilseed supplies available, especially with the South American soybean harvest coming in above expectations, further weighed on prices.
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Support in canola came from bargain hunting at the lows by commercials. Some concern about the winter storm, which dumped some unwanted precipitation on top of already excessively wet conditions, helped to buoy new-crop canola futures.
Western barley futures continued to lie dormant this week with no interest coming forward in the commodity. Cash bids for barley in select areas of Western Canada, however, strengthened in view of stronger demand from the livestock sector.
DEMAND SETBACKS
Chicago Board of Trade (CBOT) soybean futures also suffered some significant declines during the week ended April 15. Much of the bad news came in the form of demand, with China cancelling a number of large purchases of U.S. soybeans in favour of available and cheaper soybeans from South America. China also released a large amount of soybeans from its reserves, which served to weigh on CBOT soybean contracts. Favourable weather in China for the development of its soybean crops also had bearish price implications.
The South American soybean harvest, which was making good progress and coming in well above expectations, also prompted some of the price weakness. Estimates on the size of the Argentine and Brazilian soybean crops have been steadily rising from earlier expectations based on the favourable weather in those regions.
New-crop soybeans were undermined by the possibility of corn area being switched over into soybeans, especially if wet weather conditions continue to slow the planting of the U.S. corn crop.
Old-crop corn futures at the CBOT experienced some large losses while new-crop months saw only minor declines and in some cases some small advances. The significant drop-off in nearby demand, along with profit-taking, contributed to the downward price action. Renewed concerns about the global economy also caused speculative and commodity fund accounts to bail out of the nearby May and July corn contracts.
Wheat futures at the CBOT experienced some modest losses with the arrival of much needed precipitation in the dry growing regions of the U.S. winter wheat belt behind the declines. Profit-taking and unloading of positions by speculative accounts helped to push CBOT wheat futures down. Additional losses in wheat were associated with sentiment that U.S. wheat futures were overvalued and needed to push lower in order to stimulate some fresh export demand.
GUN-SHY INVESTORS
The weather continues to be the dominant feature in the Canadian and U.S. markets and under normal circumstances all the uncertainty of entering a new crop year should be fundamentally supportive for futures. However, that just does not seem to be the case.
There’s definitely some truth to the saying that no crops in Canada have ever been lost in April but that doesn’t mean the potential for a late start to seeding – and a late harvest where crops will be vulnerable to frost – shouldn’t garner at least some attention.
The zero-till culture adopted by producers in Western Canada also takes on a new meaning when the conditions are as wet as they are. With zero till, a lot of trash is still sitting on the fields and will need to be removed. But the trick will be to get on the fields while they are still extremely wet. Some individuals will likely burn their fields black, but others will wait until fields can support machinery.
The lack of support from the weather, particularly in the oilseeds, can be tied mainly to the fact that the big investors in the market don’t want to hold on to positions as they did in 2008, where weather sent values up sharply. At that time they were willing to watch the market drop significantly from the highs that were achieved. However, these investors, are now a lot more gun shy and will liquidate positions without hesitation to preserve profits.
As a result, there is more risk aversion among investors these days, which may explain the lack of a bullish reaction to the weather situation developing in Western Canada and the U.S. Midwest.
There was some suggestion by market participants that funds have essentially vacated the ICE Futures Canada trading platform, which is making it more difficult to push canola values to the upside.
Dwayne Klassen and Brent Harder write for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.
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