For three-times-daily market reports from Resource News International, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Editor’s note: Don Bousquet’s “It’s Your Business” column is not available this week.
ICE Futures Canada’s canola contracts trended higher for most of the week ended Feb. 12, before dropping on Friday to end slightly lower. Profit-taking ahead of the long weekend, an increase in elevator hedges, bearish technical signals and large global oilseed supplies all weighed on values. The Canadian dollar was up by more than two cents relative to its U. S. counterpart, putting some further pressure on canola. Spreading was the feature in the canola trade for most of the week, as participants were busy rolling out of the nearby March contract. Barley futures were also down during the week, with reluctant end-user demand behind some of the losses. However, overall trade
remained thin in the barley market.
In the U. S., soybeans and corn both managed to hold on to the short-covering gains posted during the week. The U. S. Department of Agriculture released updated supply/demand tables that included tighter ending-stocks projections for both crops, which were supportive for prices. However, the advances were limited by the looming South American crops, which continue to be unhindered by any sort of weather scare. While traders generally thought the lows were in for the time being, there was also a sense in the market that the short-covering bounce off of those lows may be coming to an end. Prices could consolidate and hold rangebound in both soybeans and corn until closer to the spring.
U. S. wheat futures also benefited from a short-covering bounce during the week. However, the overall fundamentals are still the most bearish in wheat, with large global supplies continuing to overhang the market and the firmer U. S. dollar keeping U. S. wheat overpriced in international markets.
In following all the agricultural and financial markets over the course of the week, one word inevitably popped up in nearly every story: China. With about one out of every five people in the world calling China home, when the country sneezes, the rest of the world takes notice.
The Chinese Lunar New Year begins Feb. 14, 2010. Depending on how much stock you put in placemat horoscopes, the Year of the Tiger could prove volatile in global agriculture markets, as tigers are known for their strength, but also their unpredictability. For argument’s sake, 2009 was the Year of the Ox – a work animal known for its stability and dependability. I’m not sure how well that worked out.
CONCERNS OVER CHINA
Here in Canada, the problems we’ve had selling canola to China, following the implementation of blackleg restrictions back in November, are well known. While overall exports have so far managed to keep pace with the previous year, exporters have expressed concern that the lack of the Chinese market will eventually be felt in the Canadian supply/demand tables. There is still no movement on that front.
Looking beyond our own trade issues with China, economic movements in the country were also getting a lot of play in the financial media during the week. China announced plans that would tighten its monetary supply in an effort to slow the pace of lending. With credit harder to come by in China, the concern in most markets was that the normally insatiable country will reduce its demand for everything from crude oil and coal to agricultural products such as soybeans.
U. S. soybean sales to China are already grinding to a halt, partially because of the economic issues, but also because of looming South American supplies, which will soon displace more and more North American oilseeds in the global markets.
Chinese New Year celebrations usually result in slower demand from the country for the short term as well.
Global currencies have been bouncing around in reaction to news out of China, with both the Canadian and U. S. dollars strengthening in international markets recently. Strength in both currencies is doubly bearish for canola, making the commodity that much more expensive to potential buyers.
On the other side, reduced demand for commodities across the board from China has also been linked to a softening of ocean freight rates. Cheaper ocean freight rates help Canada when moving grains and oilseeds into regions where we’re at a freight disadvantage to some of our customers, notably Australia.
With the Olympics now taking place in Vancouver, China is even dominating some of the sports talk. The Chinese women’s curling team may be seen as interesting to watch as a metaphor on the country as a whole. While China is not normally known as a Winter Olympics powerhouse, the country has decided to put some focus on curling, and now less than eight years from having virtually no curling in the entire country, the Chinese are considered serious medal contenders in the Olympics.
If China wants to buy Canadian canola, it will, but within its own time frame. When you look closely, every animal in the Chinese zodiac could be considered unpredictable, which may be one of the best lessons to take away from any predictions on the future.
– Phil Franz-Warkentin and Dwayne Klassen write for Resource News International (RNI), a Winnipeg company
specializing in grain and commodity market reporting.