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USDA Reports Set Bearish Tone

For three-times-daily market reports from Resource News International, visit “ICE Futures Canada updates” at www.manitobacooperator.ca

ICE Futures Canada canola contracts saw some choppy activity during the Easter-shortened week ended April 1. Dryness concerns in Alberta and Saskatchewan, together with a lack of aggressive farmer selling, had provided some support for the market. However, any advances were hard to hold on to, given the strong Canadian dollar and the downturn in the nearby Chicago soybean futures. As a result, canola ended the week with modest declines across the board.

The Canadian dollar jumped by nearly two cents relative to its U. S. counterpart during the week, climbing above US99 cents once again and renewing the talk of parity or better in the near future. The strong dollar cut into crush margins, which dropped sharply during the week.

While crush margins were down, the processors are still making some decent money and the demand from both the domestic crushers and the export sector should provide a firm floor for prices, although possibly on a scaled-down

basis. With the new crushers coming online at Yorkton, Sask., the crush pace is starting to surpass the year-ago level, while exports are only slightly down on the year despite the situation with China.

Western barley futures were untraded and unchanged yet again, as any barley trade continues to bypass the futures market. However, there wasn’t much more activity to report on the cash side either, as the strong Canadian dollar makes it cheaper to bring up U. S. corn DDGs (dried distillers grains) and most feed buyers are said to be well covered for the time being.

BEARISH U. S. REPORTS

In the U. S., the big news of the week was the release of the U. S. Department of Agriculture’s planting intentions and quarterly stocks reports on March 31. The reports were generally bearish, confirming large soybean and corn supplies, and also forecasting record acres of the two major U. S. crops. U. S. wheat supplies were also bearish, and while winter wheat acres were down on the year, some of those acres will be made up for with an increase in U. S. spring wheat area.

The one bright spot in U. S. futures markets was in new-crop soybeans, which did manage to hold on to gains. That strength was attributed to the unwinding of old crop/new crop spreads. The old-crop months had seen some independent strength recently on ideas that a port strike in Argentina would delay the flood of supplies from that region. The labour dispute resolved itself, and there was no longer a reason to prop up the nearby months.

According to the USDA, farmers in the country intend to plant 88.8 million acres of corn in 2010, up from 86.5 million the previous year, and 78.1 million acres of soybeans, up from 77.5 million in 2009. Those large U. S. plantings will be on top of the record-large South American crops currently being harvested, and could end up setting new records themselves if conditions co-operate over the growing season.

DROUGHT MAPS

Speaking of the weather, it added to the bearish tone in Chicago during the week, with the forecasts looking close to ideal for spring field work in many areas of the country.

The same can’t be said in Western Canada, although the areas with reasonably good conditions still outweigh the problem areas.

Looking at drought maps, the big problem areas are in the central/northern areas of Alberta and into western Saskatchewan. If those dry areas don’t get some much-needed moisture, they could be in for some tough times this spring and may see some fields left to summerfallow, according to provincial experts. Any dry areas also run the risk of seeing grasshopper problems later in the growing season.

Traders are starting to talk up the dryness as a supportive price influence in the canola market, and that talk has also put a damper on some farmer sales in anticipation of higher prices down the road. However, those higher prices remain to be seen, and there is still a long growing season in front of us. While there are some admitted areas of concern, canola acres are still expected to be up overall, which could very easily translate into increased production.

In Manitoba, the problem heading into the spring is more often excessive moisture. While there will still be some flooded-out areas, the broader concerns seem to be diminishing on a daily basis and the province may actually make it through the spring without seeing the annual closure of Highway 75 to the U. S. The most recent forecasts were giving 50/50 odds as to whether the road would close or not.

Despite any recent weakness in canola prices, the crop continues to offer the best returns per acre in most equations coming forward.

As one farmer put it to me recently, “it pencils out, and you can sell it.” Not the greatest praise, but still better than most anything else, aside from some of the specialty crops.

– 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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