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South American weather shakes up corn, soybeans

Canola futures on the ICE Futures Canada trading platform managed to trend upward over the holiday period ended Jan. 6. Steady demand from the commercial sector provided some of the strength with weather issues in the oilseed-growing areas of South America contributing to the upward momentum.

Fresh export business with China further underpinned canola values. The rally experienced in CBOT (Chicago Board of Trade) soybean and soyoil futures during the same time frame also was instrumental in canola moving up.

Domestic processor demand has also been running at record levels, providing some additional support to the commodity.

Farmer deliveries of canola have remained consistent, as end-users in select parts of the Prairies continue to offer cash premiums in order to ensure supply is making its way up their driveways.

Western barley futures on the ICE Futures Canada platform were generally dormant over the holidays, although the futures price did experience some minor declines. Cash bids for feed barley in Western Canada, meanwhile, have eased given the warm temperatures and the resulting reduced feed ration requirements for livestock. The import of dried distillers grains with solubles (DDGS) into Western Canada has also picked up, further deteriorating feed barley values.

CBOT soybean futures posted significant gains over the holiday period ended Jan. 6. Increased concern about hot and dry growing conditions in the soybean-growing regions of Brazil and Argentina influenced a good portion of the upward price action seen in the U.S. complex. The buying back of previously sold positions by commodity fund accounts ahead of 2011 was also a feature and helped to generate some of the strength seen in the commodity.

The continued lack of demand from the export sector along with the upswing in the value of the U.S. dollar helped to slow the price advances. Bouts of profit-taking further restricted the upward price action.

CBOT corn futures followed soybeans to higher ground during the reporting period. Here, too, support was derived from the buying back of short positions by speculative fund accounts ahead of year-end. Concerns about dryness in the corn-growing areas of Argentina further lifted values.

The upside in corn was tempered by the strong U.S. dollar, the ample U.S. feed wheat supply base, and the total lack of demand from the export and domestic sector for U.S. corn. The absence of demand for U.S. corn was linked to cheaper alternatives.

Wheat futures at the CBOT and Kansas City Board of Trade were higher over the holidays while values at the Minneapolis exchange generally lost ground. The gains in soybeans and corn spilled over to help to underpin CBOT and KCBT wheat futures. Speculative short-covering ahead of year-end also stimulated some of the strength experienced in those commodities.

Selling in MGEX spring wheat values was linked to ideas the crop was doing better than anticipated. The absence of demand was also an undermining price influence.

The weather in South America has certainly moved to the forefront of the news impacting the North American grain and oilseed markets. The jury is still out on exactly what kind of damage the soybean and grain crops in Brazil and Argentina have experienced, if any, but the weather forecasts will provide for some volatility in the futures markets.

There are indications that the soybean crops in southern Brazil have suffered some stress due to hot and dry conditions. However, long-range weather outlooks for the region were calling for some beneficial precipitation.

Meanwhile, temperatures in the corn- and soybean-growing areas of Argentina have been hovering in the 33-35 C range with little in the way of moisture to provide relief. The warm readings are believed to have stressed corn, soybean and sunflower crops in the central parts of that region. The longer-range weather outlooks, are calling for some cooler conditions to return to the area with increased chances of precipitation.

Dryness concerns

The weather issues are not all necessarily in South America. Producers in Manitoba and in the southeastern regions of Saskatchewan are being urged to consider crops that do well in dry conditions. The absence of significant precipitation ahead of winter freeze-up has provided for some already dry topsoil conditions. The warmer-than-normal temperatures during the first half of the winter season has also resulted in no significant snow cover on fields for spring run-off.

Colder weather is expected to return to the Prairies by the end of January or early February. The concern is, however, that the cold readings will force the jet stream south into the U.S. and with it some much-needed moisture.

The La Nia weather event is also expected to be prolonged, adding to the dryness concerns producers on the Canadian grain belt will have to deal with.

The U.S. Department of Agriculture will update its supply/demand balance sheets on Jan. 12. Early ideas are calling for USDA to reduce its 2011 U.S. soybean crop by 25 million bushels to around the 3.02-million-bushel level. Soybean stocks in the U.S. were seen coming in at 2.3 million bushels, up slightly from the previous report.

Most of the focus of the report, however, will be on what kind of changes were made to the South American soybean crop. There are ideas that both the Argentine and Brazilian soybean crops will be reduced by roughly a million tonnes.

The USDA’s world soybean output estimate was also anticipated to be down.



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