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Canola futures on the ICE Futures Canada trading platform closed the week ended June 25 with advances. The nearby July contract managed to post the best advances in response to the buying back of previously sold positions.
The rolling out of the July contract into November ahead of the expiration of the July future was also a key feature of the activity.
Strength in canola was also related to the weather. Dryness in the northern canolagrowing regions of Alberta and the excessively wet conditions across large sections of the Canadian Prairies helped to keep a firm price floor under the commodity.
The upside in canola was limited by the inability of the November future to push through solid technical resistance. Declines in CBOT (Chicago Board of Trade) soybean and soyoil values also restricted some of the upward momentum seen in canola.
Excellent growing conditions and weather outlooks calling for more of the same over the next month helped Chicago soybean and corn futures post moderate to sharp losses. Chart-related liquidation orders contributed to the downward price slide seen in both commodities. Firmness in the cash market amid slow farmer selling helped to limit the price declines. Talk of Chinese buying interest in both soybeans and corn also helped to temper the price weakness.
Statistics Canada released an updated acreage survey June 23 with the numbers promptly discarded by most of the Canadian grain industry. The survey was conducted well before excess precipitation on the Prairies became a problem and prevented producers from finishing up seeding intended crops.
However, while the grain industry was writing off the numbers, analysts were busy using the numbers as a base in which to calculate unseeded area and damage. Some felt using an 80 per cent base of the numbers provided by the government agency would be a good place to start.
Canola seeded area was pegged at 17.894 million acres, which compares with the April intentions report of 16.907 million and the 2009 seeded area of 16.199 million. Now using the 80 per cent formula, canola area would be in the 14.16 million-acre range.
The big question, however, becomes how many of those 14.16 million acres will actually be usable given the excess moisture situation. Talk in the industry was that only 13 million acres of canola will actually be usable.
The story, nonetheless, is that Canada’s canola output will be down significantly from years past.
Agriculture and Agri-Food Canada had been working with a 2010-11 canola production total of 11.7 million tonnes, but that was also based on area being a lot higher.
Speculation in the trade is that the canola crop could come in as low as nine million tonnes once the damage from the weather has been factored in, which in turn would present some rather significant implications for the supply/demand outlook.
However, before every producer starts thinking about $500 per tonne or higher canola values, keep in mind that while there’s room for a further rally, at some point end-users will switch to cheaper alternatives such as palm or soy.
Buyers in Asia have already started to back away from canola because of the price and have started using sunflower oil. Another example of a backlash against Canadian canola was in reports that the European Union was offering rapeseed into Mexico at a level roughly $30 per tonne cheaper than current Canadian offers.
Another key factor that will work against any major upward push by canola is the US soybean crop. There have been many attempts made by market participants to talk up the weather issues facing the crop, but all have fallen short and the U. S. soybean crop is on target to set some new production records.
A lot of attention will be paid to the June 30 acreage update from the U. S. Department of Agriculture. Unlike canola, the amount of area planted by U. S. producers to both corn and soybeans was likely to be pretty high, with the outcome being new historically large production.
Corn fields in the U. S. were said to be enjoying the best conditions they have ever seen and barring any crop development problems during July, a record-large corn crop will be harvested.
The weather for soybeans was not seen as favourable, but production of the crop was also on track to come in at a record-sized level. Again everything will depend on the weather conditions during July and August.
When looking at the upside in canola, one also has to remember that the South American soybean crop continues to climb in size as market participants begin to finalize numbers after the recent harvest.
– Dwayne Klassen writes for Resource News International (RNI), a Winnipeg company
specializing in grain and commodity market reporting.