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Surprises from USDA put turbulence in canola market

NAFTA anxiety puts pressure on the Canadian dollar

The ICE Futures Canada canola complex saw some volatile activity during the week ended Jan. 12, as fluctuations in the Canadian currency and a surprising U.S. Department of Agriculture report created choppy waters for the futures.

USDA released its monthly supply-and-demand report on Jan. 12, lowering its estimate for soybean yields in the U.S. to 49.1 bushels an acre, from the previous estimate of 49.5 bushels. Production was lowered to 4.392 billion bushels, down slightly from the previous estimate.

The dominant March canola contract dropped $3.40 during the week, to hit $493 per tonne. Canola continues to hang within its recently established range of $485 to $500 per tonne.

Mild temperatures over the first part of the week encouraged farmer deliveries but the warm weather didn’t last and much of Western Canada was recording -20 C temperatures by Thursday and Friday.

Earlier in the week, the Canadian dollar went for a ride after word broke that the U.S. could soon exit the North American Free Trade Agreement. The commodity-rich loonie quickly dropped below the psychologically important 80 U.S. cents mark, which made canola more attractive to foreign buyers. Concerns about the lack of snow cover in Alberta and Saskatchewan also threw a slight weather premium into the market.

Rain in South America partially alleviated concerns over excess dryness in Argentina and small parts of Brazil.

In the U.S., soybeans continue to face pressure. Despite jumping 10 to 11 U.S. cents on Friday, the market was still lower by week’s end. The market felt pressure from new estimates that hiked the size of Brazil’s soybean crop. Rain has also fallen on dry parts of Argentina and Brazil, which has taken the weather premium out of the market.

Corn futures ended the weak slightly lower. The market continues to hover close to the US$3.50-a-bushel mark. USDA raised stockpile numbers in the U.S. and the size of the harvest. However, solid demand for ethanol and livestock feed helped keep the market supported.

Chicago Wheat futures suffered modest losses on the week, weighed down by the USDA report. USDA said wheat supplies at the end of 2017-18 would hit 989 million tonnes. That compares to the previous estimate of 960 million tonnes. Disappointing weekly export sales in the U.S. added to the downside.

USDA also estimated the 2018-19 winter wheat crop at 32.6 million acres, slightly lower than last year. While it will be the lowest crop in over a century it was still more acres than analysts had predicted.

About the author

Columnist

Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Dave has a deep background in the radio industry and is a graduate of the University of Winnipeg. He lives in Winnipeg with his wife and two beautiful children. His hobbies include reading, podcasting and following the Atlanta Braves.

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