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ICE Futures Canada canola contracts moved higher during the week ended March 26, although activity was choppy and relatively range-bound. Much of the strength in canola could be seen as a reaction to the weaker Canadian dollar, which was down by over a cent compared to its U. S. counterpart on the week. The weaker currency helped crush margins show some improvement and likely encouraged some exporter pricing as well. Spring road-ban season across the Prairies was also cited as a supportive price influence for canola, although that may have more to do with talk in the marketplace than actual disruptions to movement. The severely dry weather conditions in large parts of Alberta and Saskatchewan were also starting to get more attention in the futures market. At the same time, a crop is never made or lost this early in the year, and the fact that early indications are pointing to an increase in canola acres tempered the upside. The gains in canola were also kept in check by the losses posted south of the border in soybeans.
Western barley futures were untraded and unchanged once again during the week. Cash bids also showed little movement, as ample competing feed ingredients kept that market reasonably steady.
In the U. S., soybeans, corn and wheat were all lower. Just as the weak Canadian dollar was behind some of the advances in canola, the strength in the U. S. dollar index weighed on the commodity markets there. Aside from corrective bounces on oversold technical signals, most of the news in U. S. grain and oilseed markets was bearish during the week. Large South American soybean and corn crops weighed on both of those markets in Chicago, despite the fact that weather conditions were said to be slowing some of the harvest progress on the record South American crops. Ample U. S. supplies of soybeans, corn and wheat, coupled with lacklustre export demand, further weighed on prices. Speculative selling was also a feature, with some contracts in all three commodities hitting their lowest levels in months.
U. S. weather conditions have shown some considerable improvement in recent weeks. Excessive moisture in some areas of the grain belt had given rise to concerns that spring planting would take place later than normal this year, and possibly lead to some acres shifting out of corn and into soybeans. However, those concerns no longer seem as pressing, and the sentiment has shifted to how great conditions are shaping up for planting.
The U. S. Department of Agriculture (USDA) releases its first official estimates on 2010 U. S. crop acres on March 31. A quarterly stocks report will also be released on the same day. Positioning ahead of the reports, both in the futures markets and amongst analysts making predictions on the results, has become a little bit of a cottage industry in recent weeks. By the time this article goes to print, the past month of speculation will already be a distant memory. Second guessing of the USDA numbers will be in full force, with attention slowly turning to the next major report.
Barring a surprise, corn and soybean acres will be up in the report, with both crops taking area away from wheat. However, the extent of those increases remains to be seen, and the March 31 report will be by no means the definitive answer.
Harvest delays and wet weather in the fall of 2009 kept a lot of U. S. winter wheat acres from being seeded. Corn and soybeans are the best bet to fill those acres.
Trade estimates for U. S. corn acres range from 87 million to 92 million acres, which compares with 86.5 million in 2009. Soybean acreage estimates top out at over 80 million acres, up from 77.5 million the previous year. Assuming average yields, those increased acres could still mean a decline in production, although that remains to be seen.
Looking at historical numbers, some analysts have made the case that the USDA typically underestimates the corn area in the March report, while overestimating soybean plantings. However, those same analysts also note that the actual area usually doesn’t end up that far away from the USDA numbers.
The size of the U. S. crop, or at least the anticipated size, will be a major factor in the Canadian grain and oilseed markets going forward. U. S. soybeans will have a direct influence on canola values, while corn usually provides some direction for barley, oats and other feed ingredients.
Statistics Canada releases its own seeding intentions report at the end of April, based on a survey that is likely being conducted right about now. Just as in the U. S., the pre-report trade estimates are already starting to get some play in the market, with the general consensus pointing toward increased canola and lentil acres, but declines in most everything else.
It’s still early in Western Canada, and the Statistics Canada estimates are even more renowned than USDA’s for seeing adjustments in future reports. Weather over the next few months, and changes in pricing, could still cause some significant shifting in Canadian acres, keeping things interesting.
– Phil Franz-Warkentin and Dwayne Klassen write for Resource News International (RNI), a Winnipeg company
specializing in grain and commodity market reporting.