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Weather Concerns Drive Markets

Canola futures on the ICE Canada trading platform continued their upward trek during the week ended July 15 with weather concerns and a pickup in demand assisting the price gains.

Some of the weather concerns were linked to the Canadian Prairies and differing opinions on the condition of the canola crop in each of the provinces. In Alberta, crops were said to be only average with conditions in the more northerly growing areas recently becoming excessively wet after suffering from 40 days of drought conditions. Meanwhile, in parts of Manitoba and Saskatchewan, producers in some areas were now hoping for some precipitation.

Concerns about extremely hot temperatures stressing soybean crops in the U.S. Midwest also fuelled some of the price strength in canola.

Much of the demand that came forward was commercial in nature, and was said to be extending coverage into the fall based on the crop uncertainty in Western Canada. Domestic crushers were well represented in that buying interest.

Western barley contracts on the ICE platform were again ignored by the industry and are unlikely to see any kind of action until the open interest in the October future needs to be liquidated ahead of it becoming a cash delivery month. Cash bids for feed barley, meanwhile, experienced some weakness amid declining demand from the feedlot sector.

Chicago Board of Trade soybean values strengthened significantly during the week ended July 15. Values continued to be pushed upwards in response to the continued uptrend in CBOT corn futures. Concerns about the tight old-and new-crop supply outlook, also influenced much of the upward price momentum. The hot temperatures that were seen hitting the U.S. soybean crop at the wrong time of development also generated some of the strength.

The upside in soybeans was restricted by continued concerns about the state of the U.S. economy and the fact the market is still prone to speculative and commodity fund liquidation when those worries are heightened. The absence of fresh export demand for U.S. soybeans also was an undermining price influence.

Corn futures at the Chicago Board of Trade climbed significantly higher during the reporting period with the tight old-and new-crop supply situation fuelling much of the price rise. The weather outlooks calling for the extreme heat in the U.S. corn belt further underpinned prices. Buy-stops were triggered on the way up helping to amplify the price jump. Profit-taking at the highs, however, did slow the price climb.

Wheat futures at the CBOT, KCBT and MGE also posted gains, although the price rise in Minneapolis wheat values were muted in comparison to the other exchanges.

Wheat futures followed the uptrend in CBOT corn with some chart-related demand helping to augment the price rise. The gains in wheat were tempered by the pending large Russian and Ukraine wheat harvest and news those countries were already starting to steal export business away from the U.S. The advancing winter wheat harvest in the U.S. also limited the upside price potential.

The USDA’s U.S. soybean carry-over projections released during the week generally fell within pre-report projections.

The USDA lowered its 2011-12 U.S. soybean ending stocks estimate to 175 million bushels from its June forecast of 200 million, with the estimate also down from the 2010-11 forecast of 190 million.

The USDA 2011-12 corn carry-over forecast of 870 million bushels was down from its month-ago projection of 880 million, but above the 2010-11 expectation of 695 million.

U.S. wheat ending stocks in 2011-12 were pegged by the USDA at 670 million bushels, below the 861 million estimated in June and the 2010-11 projection of 687 million.

There is some sentiment among the U.S. industry that the USDA is off beat in its estimates and that supplies, particularly corn and soybeans, will continue to be reduced in upcoming supply/demand updates.

Industry participants feel that the USDA has not factored in the poor growing conditions as indicated by the lower crop ratings than at the same time a year ago. Flooding in the U.S. key corn-growing area of Iowa and the lost crop production potential has also not been factored in the outlook yet, based on these participants.

As for U.S. prices, the general expectation is that corn and soybean futures will continue to trend up until more is known about the condition of the crop. So look for weather to be a dominant feature in determining the price direction for those crops.

As for canola, it may also be a bit too early to again start throwing around price outlooks calling for C$700 per tonne, but some participants feel that a pre-harvest high of C$650 should be obtainable.

The key supportive feature for canola will be the ability of CBOT soybeans to continue its weather-related rally. Any problems with weather and Canada’s canola crop outlook will only further enhance that strength.

However, if both U.S. soybean and western Canadian canola output comes in higher than expected, there are ideas that ICE Canada canola futures could easily sink significantly lower and possibly trend in the C$475-to $515-per-tonne price range.

Dwayne Klassen writes for Commodity News Service Canada, a Winnipeg company specializing in grain and

commodity market reporting.



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