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Wheat Outlook Remains Bearish

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Canola futures on ICE Futures Canada held within a tight range once again during the week ended April 9, but did manage to post gains in most months as steady exporter and domestic crusher demand provided support. The largest advances were found in the new-crop contracts, which are starting to see a weather premium built up over concerns about dryness in parts of Alberta and Saskatchewan. Spillover from the advances in the Chicago soy complex was also a positive price influence for canola.

The Canadian dollar traded above parity with its U. S. counterpart on a number of occasions during the week, but never managed to close above the key level. The strong currency likely had many people planning cross-border shopping trips to stock up on cheap American goods, but also constrained the upside in the canola futures. The stronger the Canadian dollar, the more expensive canola is to export customers. A strong Canadian dollar usually cuts into crush margins as well, making the commodity less attractive to domestic processors. However, crush margins actually improved on the week, given the general strength in the global vegetable oil markets, and the domestic crushers remain some of the best buyers in the canola market.

In the daily commentaries on the canola futures market, a recurring theme in recent weeks has been the “reluctant farmer selling” that is supposedly helping keep canola prices well supported. However, a look at the weekly Canadian Grain Commission grain handling stats shows producer deliveries continue to consistently top 200,000 tonnes, while visible supplies held by the grain companies are stable at over a million tonnes. While those deliveries are not necessarily priced at the time of delivery, they are being priced at some point, negating the argument of slow farmer sales to some extent.

While the canola market may not be all that “slow,” the word definitely still applies to barley futures. The market was untraded once again, although some unmet bidding allowed the July contract to post a small 50-cent gain on the week. On the cash side, bids remained range-bound with ample supplies of competing feed ingredients keeping demand relatively unaggressive.

In the U. S., soybeans moved higher with tight nearby supplies behind much of that strength. Supply/demand tables released by the U. S. Department of Agriculture on Friday confirmed the tight U. S. supply situation, but also featured an upward adjustment in the global carry-out forecast, which may put some constraints on the soybean market going forward. Large South American soybean supplies also remain burdensome for soybeans overall, and prices may find themselves under pressure, especially if spring weather conditions in the U. S. Midwest remain generally favourable.

Corn futures also moved higher during the week, although to a lesser extent. A technical bounce off of recent lows accounted for most of the strength in corn, but the advances were largely erased by the end of the week due to the generally bearish fundamentals. U. S. weather conditions were said to be looking very favourable for spring field work and planting, while the South American corn crop is also expected to be large.

A technical recovery following recent declines was also the order of the week in the wheat market, with bearish fundamentals constraining the upward move. The USDA cut its ending stocks projection for U. S. wheat by 51 million bushels on Friday, but that would still leave the country with its largest wheat carry-out in 10 years at 950 million bushels. The large supplies, poor export prospects and generally favourable conditions for the 2010 crop will likely keep the bias on the bearish side for wheat.

SPRING GRUMBLING

Canadian wheat prices, as evidenced by the Canadian Wheat Board’s pool return outlooks (PROs), aren’t looking all that promising either. That’s not to say wheat won’t account for the largest percentage of the planted acreage in Western Canada once again, due to rotational issues, but there may be more grumbling to go along with those plantings.

There always seems to be something to grumble about. Too dry or too wet. High yields, but low prices. And someone, somewhere, is always getting a better deal. Improvements in the global economy mean better pricing, but also higher costs. Tight supplies and higher bids eventually lead to a backing away of demand and those tight supplies quickly turn burdensome in a year or two. I suppose that’s the cyclical nature of a supply and demand-based market, but it is still a little off-putting to think that any increase in prices here could come due to a crop failure somewhere else in the world.

There’s a long Canadian growing season ahead, leaving the door open for many potential topics to grumble about, but spring is a time for optimism. The snow is gone in southern Manitoba and the first hints of green are starting to show themselves. Early-bird farmers in some parts of the Prairies are already starting to get on their fields and spring seeding will soon be in full force. Each seed will bring with it something to grumble about – especially in durum this year – but each seed also represents the opportunities ahead, which always look brighter in spring.

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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