For three-times-daily market reports from Don Bousquet and RNI, visit “ICE Futures Canada updates” at www.manitobacooperator.ca
Grain and oilseed prices at ICE Futures Canada in Winnipeg closed the week ended Aug. 28 mixed, with canola a bit higher in the wake of the firm tone in Chicago soybeans and the weak Canadian dollar. Slow farmer selling gave some support, as did exporter concerns that they will not have enough supplies to meet their September canola export program. Western barley posted steep declines despite the fact that U. S. corn futures were modestly higher. Competition from other feeds and slower demand, as livestock numbers fall, weighed on values. The October contract saw big losses as a U. S. commodity index fund liquidated all its long positions and got out of barley because of the poor liquidity.
Chicago corn and soybean futures ended higher, with soybean seeing moderate gains. Concerns about the late development of the crop, talk of further cool conditions in the U. S. Midwest and exceptionally strong export demand, with China a huge buyer, accounted for the firmness. U. S. corn futures posted just small gains on the coolness in the corn belt, strong exports and the gains in soybeans. However, continued talk about a record-large U. S. corn crop kept the rally modest.
U. S. wheat futures were mixed with Minneapolis lower, Kansas City and Chicago wheat a bit higher. Minneapolis was undermined by the advancing U. S. spring wheat harvest. Kansas City and Chicago were supported by export demand on ideas prices have dropped low enough to be competitive in the international wheat market. Dryness concerns for Australian and Argentine wheat also gave support. However, ample wheat supplies limited the gains in the market.
STOCKS DOWN, DEMAND UP
Canola is setting up to be quite tight this fall, which should result in favourable basis levels for producers and keep the canola market well supported even if frost does not appear.
The Canadian Grain Commission reports that as of Aug. 23, canola stocks being held by companies were just 462,200 tonnes, down from 551,000 tonnes the previous week and 713,000 tonnes in the same week last year. What makes this so important is the fact September demand will be extremely strong.
Exports are forecast at 500,000 to 600,000 tonnes while crushers will need about 250,000 to 300,000 tonnes. However, with the crop late and the harvest delayed, the supplies are not expected to be there. In fact, the trade feels farmers will only deliver about 600,000 to 700,000 tonnes. Normally with the harvest underway almost a million tonnes come to the market in September.
Farmers are holding adequate supplies to meet this demand, but have been reluctant sellers because prices have been disappointing and because of the uncertainties surrounding production of the 2009 canola crop.
The result has been very firm basis levels with prices ranging from highs of $10 over futures in Alberta to $15-$20 under in Saskatchewan and Manitoba. This will continue through the fall period on the tightness of supply.
Longer term, the canola price will be determined by the U. S. soy market. This is a normal situation, but this year will be more volatile than normal. Crop size and demand for the U. S. soybean crop are greater unknowns at this time and both have the potential to be considerably different than current expectations.
Currently, the U. S. Department of Agriculture forecasts the crop at 3.199 billion bushels. With the late development and the cool conditions that have plagued the crop, there is a much greater-than-normal chance for production to be below that. However, should everything turn ideal, then the soybean crop could hit 3.3 billion bushels.
Demand is also up in the air. Everyone is expecting Chinese demand for U. S. soybeans to fall and it hasn’t. In fact it’s running at a faster-than-expected pace.
USDA has the total 2009-10 exports at 1.265 billion bushels or 34.4 million tonnes. As of last week, total commitments for U. S. soybean exports are already 12.986 million tonnes, or almost 40 per cent of the year’s forecast total – and this is before the crop year begins. The pace of Chinese bookings suggests it will take a record amount of U. S. beans and that will pull down U. S. ending stocks estimates, even if the crop is bigger.
Some analysts say that if any damage hits the U. S. soybean crop, the price will challenge the 2008 high of US$16 per bushel and that China will accelerate its bookings.
Therefore, U. S. soybeans become the determinant in how high canola can go. At worst we will see the U. S. soybean market fall back to around $8.50/bu. and canola will trade in the $9.50-to $10-per-bushel area, as it currently has been. Or should soybean demand or production surprise the market, then we could see soybeans at the $11-$13/bu. level and canola at the $11-$13/bu. level, as well.
Even if canola production comes in at the 10-million-to 10.5-million-tonne area, above Statistics Canada’s forecast of 9.5 million tonnes, we will have no problem as demand is set to remain high, even though Europe`s rapeseed crop has hit a record 20 million tonnes and we have lost some Chinese sales to Europe.
There is one other factor that must also be watched, and that’s the value of the U. S. dollar. There is considerable divergent opinion about whether it will hold firm or collapse. Some see the global economy needing to keep the U. S. dollar reasonably firm for the rebound in the world economy. However, the majority of economists feel that the U. S. expansion of its money supply and its massive and unsustainable debt will ultimately drive the U. S. dollar sharply lower. At this point, no one knows, and everyone in the financial world is holding their breath.
While you would expect a falling U. S. dollar to boost commodities as it usually does, it also has a negative impact on canola prices, as a falling U. S. dollar means a rising Canadian dollar. This will weigh on canola prices, as well as all Canadian grain prices ultimately.
And a final word on barley: Agriculture and Agri-Food Canada is pegging 2009-10 ending stocks at a reasonably tight 1.6 million tonnes, which would normally mean firm prices. But the use of imported U. S. dried distillers grains, with and without solubles, has dethroned barley as the main livestock feed. Prices will be poorer than you would expect, given the tight supply.
– 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.