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USDA Loan Rates Favour U. S. Durum

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ICE Futures Canada canola contracts held within the tight ranges they’ve been stuck in for the past month during the week ended April 23, although the bias was to the downside as producers began seeding what could be a record-size crop. Overall, canola continues to lack that bit of fresh news that would break values one way or the other.

Statistics Canada’s planting intentions report on April 26 could be that catalyst, having pegged canola acres at the low end of trade estimates, at 16.907 million acres. However, with the general consensus calling for a sharp rise in canola acres this year, the report would have had to come out with a number well below trade expectations in order for it to boost prices significantly to the upside. Canadian farmers planted 16.199 million acres of canola in 2009, and most market participants still anticipate upward revisions to the 2010 StatsCan number. Average estimates are still calling for acres, when all’s said and done, above 17.5 million.

Regardless of the acreage number released by StatsCan on April 26, it will quickly be down-played in the market as attention turns to actual growing conditions across Western Canada and their potential impact on yields. While moisture levels were said to be sufficient to get the crops off to a good start in most areas, dryness

is already becoming more of a concern in many locations across the Prairies. If that dryness persists, or gets worse, there could be room for weather-linked premiums in the canola market.

The Canadian dollar jumped back above parity with its U. S. counterpart during the week, and the ongoing strength of the currency could be a bearish influence on canola values. However, the Canadian economy appears to be dealing with the strong currency much better than it did two years ago, and that level of comfort may limit any bearishness in the commodity markets.

From a chart perspective, the most active July canola contract has been stuck in a $5 range between $385 and $390 for all of April. The new-crop November contract has a slightly wider range, but the trend line is also rather flat.

Barley futures were steady to lower on the week, with the only actual trade consisting of participants exiting the nearby May contract ahead of it becoming the cash month. Ample competing feed grain supplies remained the overarching bearish influence in the barley market, keeping prices in the more active cash market constrained as well.

SUPPORT FOR SOYBEANS

Looking at the U. S. markets, Chicago soybeans moved higher during the week. A report out of China that the country would likely be buying more soybeans to meet its rising demand for animal feed was behind much of the strength in the futures market. Technical signals were also supportive, with the trend lines in soybeans pointing decidedly higher during the week.

The large South American crop and favourable U. S. crop weather limited the upside in soybeans. Soyoil was also down, putting some pressure on soybean values.

The demand for U. S. corn wasn’t so evident during the week, which allowed the quick spring-planting pace to pressure prices lower. Farmers are making good progress planting this year’s U. S. corn crop, and the expectations that those acres will likely be a new record kept prices pointed lower. U. S. farmers have planted close to half of the intended corn acres already, according to some estimates, which would be well ahead of the average pace.

Any rain delay to spring-seeding operations could be supportive on one hand, but they would also allow producers more time to market their old-crop supplies, which would temper any upside.

Wheat futures, meanwhile, were mixed. The Chicago and Minneapolis wheat markets both posted gains on the week, but prices in Kansas City were slightly lower by Friday’s close. Burdensome global supplies continue to be bearish for wheat, although the need for a technical correction could cause prices to see some further strength. The large commodity funds are believed to be heavily short the U. S. wheat market, and short-covering rallies could easily be triggered.

From a Canadian perspective, the interesting news from the U. S. wheat market during the week was the release of the U. S. Department of Agriculture’s loan rate schedule. While U. S. Hard Red Spring wheat prices currently offer a better return than durum, the loan deficiency payments are considerably better for durum and basically mean that producers would be guaranteed a price for their durum that’s $2 per bushel better than the actual elevator prices. As a result, durum is suddenly a much more favourable cropping option for U. S. growers than actual market conditions would indicate.

The Canadian Wheat Board cited the USDA loan rates as a bearish influence on durum prices in its latest pool return outlook (PRO) on April 22.

With durum looking more favourable to U. S. growers, there’s even less reason to grow the poorly priced crop in Canada, but the latest news out of the U. S. may have come too late to seriously disrupt seeding intentions on either side of the border.

– Phil Franz-Warkentin and Dwayne Klassen write for Resource News International (RNI), a

Winnipeg company specializing in grain and commodity market reporting.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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