For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oi l s e e d prices at ICE Futures Canada in Winnipeg generally posted small losses over the Christmas and New Year’s break. Weakness in the U. S. soy markets and volatility in the Canadian dollar created gyrations in the currency. After looking like it would drop sharply, canola came back to just modest declines. Western barley edged a bit lower amid a lack of interest.
Chicago corn and soybean futures ended the Christmas break mixed, with corn higher and soybeans a bit lower. Both markets were pushed down by bearish technical signals and profit-taking ahead of yearend. Soybeans climbed back to almost unchanged on exceptional export demand.
Corn ended higher as rising export demand and concern about the amount of unharvested U. S. corn gave some support.
U. S. wheat futures were steady to higher. The markets were generally supported by expectations for fresh technically based speculative buying once the new year began. However, dismal export demand weighed on prices and actually pushed Minneapolis futures back to about unchanged.
Heading into a new year is always exciting for market watchers as it brings the question – what are we going to see this year? Many of the market influences are already showing themselves.
The first that everyone is watching for is the rebalancing of index fund positions in the market. These “funds” are always long, which means they buy futures, which pushes prices up. It’s expected that we will see this rebalancing in January and that it has the potential to boost prices.
These funds use commodity futures to offset their U. S. dollar position in the market. They trade in most agricultural commodities, including canola. The expectation is that they will be buying agricultural commodities starting this week and that they will boost canola prices. They are also expected to be selling the U. S. dollar at the same time, as they expect it to fall sharply in 2010.
Another market factor, just starting to appear, is the South American soybean crop. Planting is virtually finished and the expectation is that the world will see a record-large crop from both Brazil and Argentina.
However, it is too early to declare the crop made, although long-range weather forecasts are favourable for the crop. The impact of a record-large South American soybean crop will be to push down soybean and canola prices, starting in the mid-to late spring.
In fact, analysts are expecting this South Amer ican supply to start a decline in oilseed values, which will see prices bottom out for U. S. soybeans and Canadian canola in the fall.
Besides adding large supplies of soybeans to the market, the South American crop is expected to woo export sales away from the U. S.
However, you can see that
the market is counting on a record South American soybean crop. When markets start relying on one crop like this, it can create extreme volatility, and that is also expected this year. Any weather threats to the crop will send soybean and canola prices sharply higher, which will give farmers a chance for some good prices for contracting.
DOLLARS AND DEBTS
Another factor to watch in 2010 will be the value of the U. S. and Canadian dollars. The general feeling is that both will be volatile, as it’s expected that we will start to see higher interest rates developing. The pressure for higher rates will likely come in the U. S., as it needs to renegotiate its incredible debt.
A higher interest rate will give some support to the U. S. dollar and pressure grain and oilseed prices down.
Canada is not as likely to see the need for higher interest rates – on top of which the government will need to keep the loonie below the U. S. dollar.
The dollar will also have an impact on input costs, and right now it looks like some of those input costs will be up from last spring.
Crude oil prices, since the spring, have been trading in a range of US$70-$80 and look like they will remain in that area.
Fertilizer markets, though, are likely to react to several other forces. The delayed harvest in both Canada and the U. S. will place a lot of pressure to get inputs on the land in a relatively short period of time this spring, which means aggressive buying by producers and pressure on prices to go higher.
In addition, with the exception of potash, inventories of fertilizers are all below their five-year averages, which means there is pressure for them to rise. The expectation is that U. S. farmers are going to aggressively plant corn in 2010, which also means strong demand for fertilizer.
Farm input analysts are telling their clients to be booking their fertilizer needs now.
SEEDING IN 2010
Something else being watched carefully is the plant ings for 2010. The expectat ion is that there will be more corn and less soybeans in the U. S., due to the profitability of the crop. The competition from South American soybeans will depress soybean values, making corn more attractive, price-wise.
Also making corn prices more attractive will be the delayed harvest, which will mean that the land preparation and planting pace will have to be aggressive in the spring and a premium will have to be built into the market.
The expectation is that we will see three million to four million more acres of corn in the U. S. in 2010 and about 500,000 to a million fewer acres of soybeans. Obviously this means much fewer wheat acres.
In Canada, traders are looking for more canola acres, maybe as much as a million more, due to cash flow and profitability. Barley, flax and wheat acres are expected to be down. Oats acres are expected to be higher.
Besides these factors, the usual influence of weather will have its impact on the crops. Right now, both U. S. and Canadian long-range forecasters are calling for fairly benign weather for the growing season, but we all know how quickly that can change.
And every year, something new and unexpected comes along. Look at the Chinese embargo on Canadian canola imports due to blackleg or the U. S. halting of canola meal imports due to salmonella. I can guarantee you that at this time last year no one had those factors in their market outlooks.
Happy 2010; I hope you have a productive and profitable year.
Don Bousquet is a well-known
market analyst and president of Resource News International (RNI),
a Winnipeg company specializing in grain and
commodity market reporting.