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Watch for opportunity in canola market bounces

Weekly grain market report for Oct. 3, 2013

ICE Futures Canada canola contracts moved higher during the week ended Sept. 27, as the market managed to see a bit of a short-covering recovery off of its recent lows. Harvest pressure and large Canadian crop prospects will likely keep the overall path of least resistance lower in the near term, which should make any bounces (like the one seen this week) a good selling opportunity.

As yield reports come in from across the Prairies, some industry participants now predict a 17-million-tonne canola crop. If true, that would easily be a new record, as the country has never even grown a 15-million-tonne crop before. End-user demand may be there for those large supplies, but the exporters and domestic crushers will have little incentive to pay up given the sheer abundance.

Canada isn’t the only place with ample oilseed supplies this year. While concerns over hot and dry Midwestern weather conditions have propped up the U.S. soybean market over the past month, current U.S. Department of Agriculture production forecasts still place production at about the fourth highest on record. Early yield reports are generally beating expectations and many private forecasts are starting to come in above the 3.15 billion bushels USDA now predicts.

Brazil and Argentina both had large soybean crops of their own in 2013-14, and farmers in South America are expected to continue to expand their seeded acreage to the crop.

Palm oil is the world’s biggest vegetable oil crop, and large supplies have seen Malaysian palm oil prices drift down toward their weakest levels in four years over the past few months.

Looking at the total world oilseed picture, USDA currently predicts total world oilseed supplies (production plus carry-in) for 2013-14 at 564.76 million tonnes, which would be 26 million tonnes (or two years’ worth of average Canadian canola production) above the previous year. World vegetable oil supplies in 2013-14 are forecast at 186.56 million tonnes, an eight-million-tonne increase from the previous year.

In U.S. futures markets, soybeans and corn both ended the week with small advances in the most active contracts, with chart-based buying and fresh export demand behind some of the strength. However, harvest operations are in their early stages for both crops and seasonal pressures are expected to limit nearby upside potential for the time being.

Wheat, meanwhile, saw a big jump during the week, with all three contracts posting solid gains. Kansas City hard red winter wheat contracts (now traded in Chicago) posted the largest advances, with the December contract actually moving above the equivalent Minneapolis futures. Good export demand for U.S. wheat provided the catalyst for the jump higher. Some stops were uncovered on the way up, which only exaggerated the gains.

However, just as Canada’s canola crop is expected to be record large, estimates on wheat production are also rising. Statistics Canada releases updated production estimates on Friday (Oct. 4) and the all-wheat number is generally expected to come in above the already large 30.5-million-tonne crop predicted earlier this year. Canada last grew over 30 million tonnes of wheat over 20 years ago, in 1991.

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