Aweek can certainly make a world of difference in the agriculture markets, especially when that week consists of some fairly good weather for the first time in a while. There was some lingering shower activity in parts of Alberta, but the Prairies eventually turned warm and dry and are forecast to remain that way at least into the first week of October. The good harvest weather was bearish for canola values at ICE Futures Canada, taking prices off their nearby highs as farmer hedges picked up steam.
Bearish technical signals added to the downward slide in canola, as the commodity and index funds who had built up large long positions took some profits.
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The seasonal harvest pull-back will continue to limit the upside in canola, and could see the most active November contract fall another $8 before it runs into some chart support around the $460-per-tonne area. However, domestic crushers and exporters both still want canola, and they will be good buyers on any moves lower. Heightening the end-user demand is the fact that there are definitely some quality concerns with this year’s canola crop. The longer, upward technical trend also remains intact for canola, although it appears to be slowing down.
Statistics Canada released its updated production estimates Monday morning, Oct. 4, and pegged the canola crop at 10.4 million tonnes. That compares with the previous forecast of 10.8 million and the revised year-ago level of 12.4 million. The survey was conducted in early September, and actual production was likely hindered by the poor weather seen for most of September. The second guessing will now begin in the buildup to the final production numbers due out in December.
Barley futures were mixed during the week, although there was very little actual trade. Most of the activity in the barley futures was a result of arbitrary moves made by ICE Futures Canada to keep prices somewhat in line with the cash market.
INTO THE PIPELINE
A number of weather-related issues also came to play in U. S. grains and oilseeds during the week, where corn, soybeans, and wheat were all sharply lower. Harvest conditions across the U. S. Midwest remain near ideal as the soybean and corn harvests start to move forward. The advancing harvest means more supplies entering the commercial pipeline, which weighs on values. A quarterly stocks report from the U. S. Department of Agriculture showing much larger-than-expected corn supplies amplified those ideas about adequate supplies, and sent corn limit-down to end the week. Chart-based selling added to the declines in all three commodities, with much of that selling tied to month-end position-evening.
While North America benefited from some good harvest weather during the week, rainfall in Russia, Ukraine and other Black Sea regions also generated some movement in the markets. The drought conditions that forced the country to block all grain exports finally showed some signs of letting up. The precipitation is too late to save this year’s crops, but will do a lot to help the winter wheat currently being seeded for next year.
Weather can be fickle at best, and for every area finally catching a break, there is usually another place on the wrong side of a front. La Nińa weather patterns are causing some problems in Brazil, the world’s second-largest soybean grower, just as producers there start planting their crops. Rainfall has been very sporadic in some of the key soybean-growing regions, causing farmers to delay planting until there is some more moisture in the soil.
The warm, dry conditions that everyone would like to see across Western Canada over the next month may lead to some nearby harvest pressure on all commodities. However, if the harvest window manages to hold open long enough, that will definitely be good in the long run, as it would be pretty hard to sell supplies stuck in the field, regardless of the price.
Quality is another matter, hampered severely by the weather this year. Those quality issues will be a major factor in the cash markets going forward, with wider premiums for the top-end grains and oilseeds likely. As far as feed ingredients are concerned, it appears as if there will be no shortage of supply.
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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