Canola futures on the ICE Futures Canada trading platform strengthened during the week ended Oct. 15, with much of the upward price momentum encouraged by the gains experienced by CBOT (Chicago Board of Trade) soybean futures as well as by the aggressive demand from the Canadian canola-processing industry. Fresh speculative demand surfaced during the week, also contributing to the price advances in canola.
Bouts of profit-taking, overbought price sentiment and talk that yields from the recently harvested canola crop in Western Canada were coming in at levels much better than anticipated, helped to trim some of the bullish price tone.
Western barley futures continued to be inactive.
CBOT soybean futures climbed significantly higher during the reporting period with the tighter-than-expected soybean supply picture in the U. S. and consistent export demand from China fuelling the advances. Concerns about dryness in soybean-growing regions of Brazil
and Argentina also helped to prop up values. Profit-taking and overbought price sentiment helped to restrain the price gains in soybeans.
Corn futures at the CBOT also managed strong gains. Strength in corn was linked to the tight U. S. corn supply situation, talk of corn shortages in other major growing areas and a pickup in demand from both the domestic and export sectors. Much of the domestic sector was said to be picking up corn to cover livestock feed needs as well as ethanol production.
Nearby CBOT wheat values actually lost some ground, reflecting a demand drop-off due to overbought market conditions and a drop-off in immediate export demand. Deferred values were underpinned by the tight wheat supply situation.
While the nearby demand picture for U. S. wheat has faltered somewhat, there are ideas that end-users will be turning to the U. S. for their wheat needs in the intermediate to longer term, given that the country is about the only outlet left with exportable supplies.
Crop production problems in some of the other major growing regions of the globe, specifically Russia, will allow for that distinction.
Before Russia put the brakes on its wheat export program, the country was the world’s third-largest shipper of wheat and had taken over the supplying of Egypt’s needs. Egypt continues to be the world’s largest importer of wheat.
Russia’s regular wheat crop fell well short of expectations due to extremely dry growing conditions. Russia’s winter wheat crop also was going into the ground amid very dry conditions and because of that was also expected to fall short of acreage goals. There were ideas that the Russian government’s embargo on wheat exports could be extended beyond the previously announced date of June 1, 2011.
Expectations that Canada’s wheat harvest consisted of lower-quality grades rather than higher were seen helping the U. S. move to become the No. 1 shipper of wheat on to the world market. Wheat production problems in key growing areas of the European Union were also linked to the demand for wheat switching to the U. S.
The demand switch to the U. S. has already drawn down U. S. wheat stocks in a very short period of time from 20-year highs to 18-year highs, and there are ideas this draw on U. S. supplies will continue for some time to come.
The U. S. Department of Agriculture is currently pegging U. S. wheat ending stocks at 853 million bushels, but speculation among market participants is that the demand will see this supply base fall to 500 million bushels within the next two to four months.
One would think that with the drawdown in world wheat supplies, producers in Canada and the U. S. would have taken advantage of the wheat shortage and inevitable strong price base to plant the crop this fall and in the spring. In Canada, the late harvest prevented producers from seeding much in the way of winter wheat. As for the U. S., its winter wheat acres were down; producers don’t want to take a chance on the crop as they have corn and soybean dollar signs in their eyes.
Spring wheat area in Western Canada was also seen falling as producers look at the strong demand and values for canola.
There was some wild speculation circulating in the Canadian canola sector that Prairie producers could seed a record 19 million to 20 million acres of canola this spring. The area base would come at the expense of wheat, oats, pulse crops and hay.
U. S. corn and soybean acreage next spring was also seen hitting new record highs as the demand for those crops and the strong price base attract acres at the expense of wheat.
The bottom line is that wheat prices in Canada and the U. S. will have nowhere to go but up, if this scenario continues to be played out. With CBOT wheat futures already trading above US$7 a bushel, there is likely nothing stopping values from moving well above US$8 at some point.
Dwayne Klassen and Phil Franz-Warkentin write for Resource News International (RNI),
a Winnipeg company specializing in grain and commodity market reporting.
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