Canola futures on the ICE Futures Canada trading platform posted some significant advances during the week ended Feb. 4, with new contract highs established in a number of months.
Strong domestic processor demand for canola, along with continued strong export interest, helped to stimulate some of the strength. Adding to the upward price momentum were the advances experienced by Chicago Board of Trade (CBOT) soybean and soyoil values.
The penetration of technical resistance was also an underpinning price influence for canola.
Western barley futures were untraded, with open interest in nearby March holding at a very minimum two contracts. The May and July contracts were arbitrarily bid upward during the week.
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CBOT soybean futures also saw some strong gains, with the tight global oilseed supply situation and continued strong export demand fuelling the upward price move. The establishment of new contract highs in Malaysian palm oil futures also contributed to the firm price tone. Adding to the support in soybeans was the need to encourage U.S. producers to plant the crop by pushing up futures.
Profit-taking at the highs and the improvement in Argentina’s soybean-growing areas tempered some of the price advances in the CBOT soybean complex.
CBOT corn posted modest to sharp gains during the week with talk of fresh export demand encouraging the advances. An increase in corn as a livestock feed, because of the cold and snow that covered a large chunk of the central and eastern regions of the U.S., only served to further decrease available corn stocks.
Wheat futures at the CBOT were higher with the absence of high-quality wheat supplies globally, providing the upward impetus. Support in U.S. wheat futures was also encouraged by cold temperatures moving into the U.S. winter wheat belt. There were concerns that quite a few areas did not have enough snow cover to protect the crop from the cold readings.
Profit-taking and overbought market conditions trimmed some of the price advances seen in wheat.
One of the surprises of the week in terms of news, was the grain stocks in all positions report from Statistics Canada. The report, released Feb. 4, revealed canola stocks, on farm and in commercial positions as of Dec. 31, 2010 were much tighter than had been anticipated by some market participants.
The government agency pegged Canada’s canola supplies at 8.242 million tonnes, down from the 9.437 million at the same time a year ago.
The key feature to the number was that export and domestic usage of canola has been much stronger than anticipated. Demand has been so strong that if some rationing does not occur soon, canola supplies at the end of the 2010-11 crop year will be almost non-existent.
Rarely does the industry allow that to occur, and that in turn should allow prices to rise further in order to slow the usage. Some market participants were now working with a 2010-11 canola ending stocks forecast of 500,000 to 800,000 tonnes. Agriculture and Agri-Food Canada, in its recent supply/demand projection, had forecast 2010-11 canola carry-over at 1.1 million tonnes.
The upside in canola also will continue to prevail as long as the global oilseed demand scenario remains tight. Compared to outside oilseeds, canola seems undervalued, leaving room for some additional price strength.
OAT USERS SERVED NOTICE
The oat supply situation in Canada was also viewed as supportive for cash oat bids. StatsCan projected Canadian oat supply on farm and in commercial positions as of Dec. 31 totalled 2.105 million tonnes. This was down from the 3.03 million at the same time a year ago.
The price climb in the cash market should come as end-users finally get the hint that values for the commodity need to rise in order to ensure enough acreage is sown this spring on the Prairies.
There are ideas that the area seeded to oats will climb from the year-ago level, but producers are very unhappy with the prices being offered by the industry. It was also pointed out that with the wet spring, producers may have to look at crops with shorter growing seasons, and while oats fit that bill, prices being offered for wheat are certainly surpassing those of oats, and in turn could make things interesting.
The battle for area in the U.S. also continues to heat up. There are ideas floating around that soybean acreage in the U.S. may not go up, as producers there look at cashing in on the extremely tight U.S. corn and cotton supply situation.
Some U.S. outlets are projecting U.S. soybean area at 77.5 million acres, which would be virtually unchanged from the previous year’s level.
Based on planted acreage at 77.5 million acres and an average yield of 44 bushels per acre, the calculated 2011 U.S. soybean crop would total 3.37 billion bushels, up around 40 million from last year. However, carryover heading into the new crop year in the U.S. was seen as tight and given that demand in the new season will offset the jump in output, supplies of soybeans in the U.S. were seen remaining extremely limited.
Dwayne Klassen and Phil Franz-Warkentin write for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.