Canola contracts on the ICE Futures Canada platform moved higher during the week ended April 1, taking their cue from the rally in the U.S. soybean and corn markets.
Activity was range-bound and choppy for the first half of the week, as participants squared their positions ahead of two widely anticipated U.S. Department of Agriculture reports. When the stocks and prospective plantings numbers came out on March 31 they were widely seen as bullish for soybeans and corn. Those markets jumped higher, and canola followed suit.
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With that USDA data out of the way, attention is expected to return to the weather situation across North America. When it comes to canola, the expectations are for large acres. However, none of that crop will be in the ground anytime soon, and the wet conditions plaguing fields across most of the Prairies should keep a bit of a risk premium in the futures going forward.
Western barley futures saw some actual trade for the first time in quite a while, boosting the open interest from 10 to 35 contracts. If you look at it one way, that’s a 250 per cent rise in the open interest, but the futures are still a long way from returning to their position as a viable pricing option.
In the U.S., the story of the week was the buildup to the March 31 USDA numbers. The data came out highlighting tightening soybean and corn stocks, sending those markets climbing higher. Corn saw the biggest jump, as that market will need to do some serious rationing to make sure there are still enough supplies around ahead of the new crop production. The acreage battle is in full swing and will likely only intensify.
With both corn and soybeans dealing with some very tight supplies, especially as demand remains strong, every acre in 2011 will be important. Prospective corn plantings from USDA, at 92.2 million acres, would be the second largest on record, while intended soybean acres, at 76.6 million, would be the third largest. Expect the weather conditions, and the day-to-day interpretations on what the forecasts will mean for seeded area, to be a major feature in the grain and oilseed markets over the next month at least, if not longer.
Projected U.S. wheat area for the 2011 growing season, at 58 million acres, would represent a sizable increase on the 53.6 million seen the previous year. Of the wheat total, 41.2 million acres are winter wheat already in the ground.
U.S. wheat supplies are relatively comfortable, compared to soybeans and corn, and the increased acres could be seen as bearish for the market. However, the weather concerns are mounting in wheat as well.
CURE FOR HIGH PRICES
The southern U.S. Plains are dealing with some extreme drought conditions, leading to concerns that winter wheat crops there may end up with poor yields or need to be reseeded with something else. In the north, the concern is excessive moisture, which will delay spring wheat.
Last summer, drought issues in the former Soviet Union triggered a rally in the wheat market. Russia and Ukraine shut down grain exports in response to their reduced production. Current conditions are looking much better in the region, with some recent government forecasts including upward revisions to the crop estimates. It will take some time to rebuild stocks, but overall the old adage that the “best cure for high prices is high prices” may be holding true in wheat. The International Grains Council recently came out with an estimate forecasting total world wheat production in 2011-12 at 1.805 billion tonnes. That would be up from 1.726 billion in 2010-11. However, the IGC is also predicting demand at 1.808 billion, which means ending stocks could tighten on the year.
Currently world wheat supplies are sufficient to meet demand, but quality is an issue. High-protein wheat, as is grown in Canada, is in particularly short supply, which means the wet weather here and likely planting delays will also be an underpinning feature in the global markets.
Phil Franz-Warkentin and Dwayne Klassen write for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.