ICE Futures Canada canola contracts bounced around within a rather narrow range during the week ended June 3, seeing some consolidation after climbing to their highest levels in months the previous week. Both the old-crop July and the new-crop November contract ran into stiff chart resistance at the $600-per-tonne level, which may have factored into the softer tone for most of the week. While the two most active contracts did manage to break above that level at one point, they were unable to hold on to any gains and edged lower as a result.
Most market analysts are currently taking the stance that canola prices could be at their high end right now, and are more likely to go down than up, barring a new weather scare or other outside market activity. Persistent rains
in the wettest areas of eastern Saskatchewan and western Manitoba and the likelihood of a large amount of unseeded acres are a bullish prospect. However, those concerns are largely factored into the market already, and a bearish prospect is the fact that crop conditions in other areas of Western Canada are said to be looking reasonably good. In addition, there is still some time for full crop insurance coverage for canola and late-seeded acres could be shifting out of other longer-season crops and into the relatively easy-to-grow oilseed.
The dry European rapeseed crops have finally received some much-needed moisture, easing some of the production concerns there and also taking away some of the recent weather-related strength in canola. However, the crops in Europe will still need more moisture, and some yield loss has already occurred. In Canada, there is a long growing season ahead, with many chances for another weather market to materialize.
In the U.S., corn futures climbed to fresh contract highs in the new-crop months, as the clock ticks down for getting in the last unseeded acres in the wet Midwest. However, profit-taking at the highs did limit the advances. Ideas that some end-users were rationing demand and turning to cheaper options, such as feed wheat, also tempered the upside in corn.
Soybeans moved higher as well, although there is still a large enough window for seeding that crop in the U.S. that production may not be hurt as much as feared – especially if some intended corn acres still switch into beans. The ample South American supplies moving on to the market also have the potential to weigh on prices, but those supplies can only cover so many problems in the U.S. before the global balance sheet turns tight.
Wheat futures were on the choppy side, moving lower overall as participants took profits on recent gains. The moisture in Europe should also help the wheat crops see some improvement, while reports that Russia would soon be back in the export market were also bearish for prices, despite the fact that anticipation for their return has already been brewing for some time.
RECOVERY AND RESISTANCE
An overarching factor in the grain markets these days is the international economy and its recovery, or lack thereof. Supply/demand fundamentals can tighten considerably, but if the economics aren’t there for end-use customers to justify paying a higher price, they will simply tighten their belts or turn to cheaper alternatives.
U.S. jobs data were on the soft side during the past week, which was seen as a sign of the slow recovery there. The Dow Jones industrial average and the TSX both moved lower during the week as well, while a number of European nations also still face debt challenges. Ongoing unrest in parts of the Middle East and North Africa also continues to throw a wrench into economic projections. In addition, crude oil dipped below US$100 per barrel during the week, which was taken as another sign of a slower economic recovery.
Phil Franz-Warkentin and Dwayne Klassen write for Commodity News Service Canada,
a Winnipeg company specializing in grain and commodity market reporting.