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 closed the week ended Oct. 23 mixed. Canola prices plunged on news that China wants canola delivered after Nov. 15 to be free of blackleg contamination. That threat to Canada’s canola sales to China accounted for the losses.
Prior to this, the market had been firming nicely on gains in the U. S. soybean market, strength in crude oil, a softer Canadian dollar and slow farmer selling. Delays in harvesting also gave some support. Western barley rallied on gains in the Chicago corn market and slow farmer selling.
Chicago corn and soybean futures rallied during the week as rain and cool temperatures halted harvesting in much
of the U. S. Midwest. That prompted commercial support and slow farmer selling, which in turn caused chart signals to become friendly, triggering speculative buying. It really does look like the harvest could be stalled in many areas through the end of the month.
U. S. wheat futures posted a fairly strong rally on the week, which caught many in the trade by surprise as the fundamentals in wheat are bearish. Some feel this rally is just a short-term bounce higher after the big declines we have seen in the market. Some of the gains reflect the delays in planting the Soft Red Winter wheat crop due to the late harvest in the U. S. south. The expectation is that the U. S. has already lost some winter wheat acres.
However, if Minneapolis December spring wheat climbs convincingly above the $6-per-bushel level, it would suggest that something has changed in the fundamental wheat outlook. It’s interesting that the Canadian Wheat Board left its wheat pool return outlooks (PROs) unchanged. Perhaps they are also witnessing some turnaround in the markets.
The Canadian grain trade was dominated this week by the news that China wants the Canadian Food Inspection Agency to issue certificates that canola shipments are free of blackleg. This sent shock waves through the trade as China has become our single-largest canola customer, taking 2.8 million tonnes last year.
The situation began early in October when the Chinese informed the Australians that they were concerned about blackleg in some Australian canola/rapeseed shipments. The feeling is that after dealing with the Australian situation, the Chinese decided to apply fresh rules to Canada’s canola.
There is also talk that the Chinese have established some new weed and seed tolerances in all grain and oilseeds shipments to China and that the world will be facing some new rules. Right now the fear is that the rules will not apply equally to all. There is now talk, for example, that these new rules will not apply to the U. S. However, this just might be “fear talking” and not rational talk.
As my column goes to press we do not know what China’s blackleg tolerance will be. The Chinese do have a problem
with blackleg, as does most of the world. So it would seem that zero tolerance would be unrealistic.
There are also those conspiracy theorists who feel that this may be a ploy by China to get domestic prices up for its farmers.
I have just finished a tour of the Prairies and canola is facing another major problem: the level of unharvested canola in Western Canada. Saskatchewan has the largest amount, with Alberta second and Manitoba third.
According to people I have talked to, as much as two million tonnes are still unharvested. They feel that we will need an unusually nice November in order to get that crop in. This will have to be watched, as it will have a significant impact on futures prices and on cash market basis levels.
Another market, other than wheat, that is seeing some unusual activity is the feed barley market, as prices have edged higher for the Western barley futures contract. The January contract has moved about $15 per tonne higher since setting its low in September. It is also interesting to note here that the CWB PRO for feed barley was left unchanged.
The only piece of positive news for barley that I could find was the fact that Chicago corn futures have seen a solid gain. However, the barley fundamentals, both globally and in Canada, are bearish.
The U. S. Department of Agriculture is forecasting the global barley crop at 147 million tonnes, up five million tonnes from last year. Cheap barley has been available from the Black Sea region, but that movement seems to be slowing.
Statistics Canada has pegged the Canadian crop at 9.1 million tonnes, but most of the trade feels the Canadian barley crop this year will be at least 9.5 million tonnes. This is down considerably from last year’s 11.7 million tonnes.
However, offsetting this is the fact that demand is falling as dried distillers grains with solubles (DDGS) have displaced about 20-30 per cent of the barley in livestock rations for much of this winter. Total demand for barley is expected to be about nine million to 9.5 million tonnes, well below last year’s 10.5 million.
As a result, 2009-10 Canadian barley ending stocks are expected to range from 2.8 million to 3.2 million tonnes, up from last year’s 2.8 million tonnes. This is a burdensome supply.
This suggests that barley prices should be falling and that we could see barley futures down to the $120 level, instead of at the $160 level (January futures) we are seeing today.
Once again it seems the barley market is defying logic and that something seems to be happening that suggests fundamental factors are changing. Should this market climb above $170 per tonne, that would confirm that something has changed.
It is interesting to note that the CWB PROs did lower select barley prices by $4 per tonne while leaving feed barley unchanged. This reflects the oversupply in the malt barley market. In Europe, feed barley and malt barley prices are the same, with the big premium in the malt barley market in 2007 having totally evaporated.
This reflects large crops in Europe and Australia and also reflects falling demand as the global recession has cut into beer demand, particularly in developing nations such as Brazil and China.
Canadian farmers are lucky that the CWB is able to command a premium in the domestic market, which is keeping select barley at a premium as the export market price fades. The expectation is that the export malt premium will continue to fall against feed.
However, the recent price moves in both wheat and feed barley have analysts scratching their heads. Just a few months ago, analysts were predicting a crash in these markets to the dismal lows of 2005.
– 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.