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Trading Refocuses On Market Fundamentals

Canola contracts traded on the ICE Futures Canada plat form chopped around within a narrow range during the week ended March 25, but the bias was to the upside in the end. The market took a much-needed breather after seeing some volatile price swings over the past month. With consolidation the order of the day, canola could be setting itself up for a break one way or the other in the longer term, but in the short term the path of least resistance may remain flat.

Outside market forces, including the disaster in Japan, the unrest in Libya and global economic sentiments, should be expected to provide a backdrop for the canola trade going forward. The Canadian federal election may even cause some ripples in the markets, although agriculture does not appear to be a campaign priority for any of the parties. Fundamental issues are starting to regain their prominence as the snow finally starts to melt and seeding conditions and acreage ideas will take precedence over any of the political machinations.

PROCEEDING WITH CAUTION

In the U.S., range-bound consolidative trade was also the predominate feature. Corn did manage to move higher on talk of export sales to China. Soybeans finished mixed on the week, with slight declines in the old-crop months, but a firmer tone in the more deferred futures.

There was some caution in U.S. markets, as attention turns to new-crop prospects. All eyes will be on the U.S. Department of Agriculture’s planting projections report, due out March 31. Everyone and their dog have come out with their own estimates ahead of the report, which means any official numbers will be quickly reanalyzed and discussed. The USDA forecasts will be seen as a good jumping point, and will provide the backbone for those discussions going forward, at least until more of the fields are actually planted. One commentator referred to the report as “the starting line of the acreage race.”

U.S. soybean and corn stocks are both tight, which means both are looking to secure more acres this spring. A good portion of the U.S. Midwest is looking very wet heading into the planting season, throwing another wrench into the mix. Corn acres are being estimated at anywhere from 91 million to 94 million, with most estimates around the 92-million area. That would compare with 88 million acres in 2010. Soybean area is being estimated at 75 million to 78 million acres, which would compare with 77.4 million in 2010.

SPECULATE AND ESTIMATE

In Canada, Statistics Canada doesn’t come out with its first official estimates until the end of April. Much will depend on the weather, but canola intentions are widely expected to come in above the 16.8 million acres seeded last year.

It will be at least another month – likely longer, given the dismal weather forecasts – before seeding starts up in any serious way in Western Canada. The acreage speculation on both sides of the U.S./Canada border will be a big feature of the futures markets, but in the meantime other parts of the world already have a crop to talk about.

Brazil is starting to move forward with its soybean harvest and Argentina will also be harvesting soon. Those large supplies will weigh on international oilseed markets.

However, the bulk of those South American soybeans is still a long way from getting in the bin, and as planting weather issues become more important in the Northern Hemisphere, any talk of harvest delays in the south will also serve to prop up prices. Excessive moisture has already caused some problems with the Brazilian soybean harvest, and could lead to production or quality losses if adverse weather persists.

Phil Franz-Warkentin and Dwayne Klassen write for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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Forthree-times-dailymarket reportsfromCommodityNews ServiceCanada,visitICE FuturesCanadaupdates”at www.manitobacooperator.ca.

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