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ICE Futures Canada’s canola futures were range-bound once again during the week ended May 28, although the bias was to the downside in most months as the Canadian dollar managed to claw back off of its recent lows.
The currency bounced around during the week, but managed to improve by about a cent relative to its U. S. counterpart during the week. The strength in the currency was largely countered by movements in other financial and commodity markets, and canola crush margins actually managed to improve by about $5 per tonne during the week.
The largest declines in the futures were in the nearby July contract, while the more deferred positions traded within a much tighter range.
Depending on who you talk to, Prairie weather conditions are either bullish or bearish for canola and that uncertainty translated into a choppy futures market as well. On the one hand, “rain makes grain” sentiments should be weighing on canola values, as there aren’t too many areas of Western Canada that could be complaining about a lack of moisture this year.
However, in the fine balance of growing a crop, it’s pretty easy to see that too much of a good thing (read: rain) could be causing problems if conditions remain wet. The moisture has delayed some seeding operations, while there’s been talk of flood damage on other fields where the crops have already emerged. While bad for production, those are the kinds of weather-related problems that can pull prices higher.
To add to the uncertainty, I’ve also heard ideas that seeding delays will actually result in more acres going into canola in the end, as the weather forces producers to shift away from some crops. The good moisture levels could see canola area top 18 million acres, according to some market analysts, far surpassing any previous records.
Statistics Canada releases its next acreage estimates on June 23 and is likely in the process of conducting that survey right now. Of the three Prairie provinces, seeding is the furthest along in Manitoba, but there are still enough acres left unseeded overall in Western Canada that the June acreage report will be taken with a grain of salt. Second guessing on the government numbers should start as soon as the official report is released, if it’s not already begun.
From a technical standpoint, the canola charts could easily be called flat once again, after prices dropped lower at the beginning of May. The July contract should find some firm technical support at any attempts to move prices towards the $370-per-tonne level, while the November contract seems to be uncovering buying interest on any moves below $380 per tonne.
BARLEY ACTIVITY, BARELY
Western barley futures actually saw some brief activity during the week, with the nearby July contract posting small gains. However, the end result of the back-and-forth trade was a further reduction in open interest to the point where there are only seven outright positions being held in barley.
In the cash barley market, prices held reasonably firm as a lack of farmer selling propped up values. However, the large competing feed grain supplies remained bearish on feed prices overall, keeping cash bids on the flat side.
In the U. S., the futures were mostly lower, although the more deferred soybean contracts did manage to post some gains.
Weather conditions across the U. S. Midwest continue to be near ideal for the crops in the country, with timely rains and good moisture levels complemented by relatively warm temperatures. The good weather bodes well for yields but could put some further pressure on prices in the weeks ahead if they persist. The long growing season ahead should keep some uncertainty in the futures, and likely accounted for some of the strength in the new-crop soybean futures.
The weather may have the largest impact on production and eventual supply/demand scenarios, but the global financial uncertainty also remains a key factor in U. S. grain markets, and should keep some choppiness in the markets going forward.
Wheat values in particular could be due for a corrective short-covering bounce, after nearing or setting fresh contract lows in all three U. S. wheat markets over the past week.
Citing large global wheat stocks, production outpacing demand, and general economic uncertainty, the Canadian Wheat Board lowered its price projections for most classes of wheat in both the current crop year and the upcoming 2010-11 marketing year. Aside from a potential short-covering bounce in the U. S. futures, all signs are pointing to further declines in the PROs. North American farmers likely seeded less wheat this year, but crops are still large in other areas of the world, with few production problems to speak of.
Phil Franz-Warkentin and Dwayne Klassen write for Resource News International (RNI), a
Winnipeg company specializing in grain and commodity market reporting.