ICE Futures Canada canola contracts remained pointed higher during the week ended Feb. 24, as bullish technicals and solid end-user demand kept values well supported.
Canola has moved higher every week for the past month, and while every advance heightens the chance of a profit-taking correction, that inevitable downturn has yet to rear its head. In the meantime, brokers and analysts have been busy advising farmers to make steady sales into this rally — the general message being that there might be more strength left in canola, but current levels are looking profitable in their own right.
With concerns over cuts to South American soybean production largely priced into the futures, the oilseed markets will need some new fuel to continue moving higher. Looking ahead, the direction canola takes will largely depend on what happens in CBOT (Chicago Board of Trade) soybeans.
From a technical standpoint, the May canola contract is trading very close to a number of key chart points at its current level just above $560 per tonne.
Speculators and commodity funds have built up good-size long positions during the recent rally and are comfortable at current levels. With those large long positions, it wouldn’t take much to trigger a round of profit-taking, with $540 a possible target to the downside in the May contract.
At the same time, strong commercial demand remains supportive underneath the market, with domestic crushers operating at a record pace in February and exports continuing to leave the country at a record pace as well.
Milling wheat futures in Winnipeg were down on the week, although trade volumes remain thin at best. Spring wheat in Minneapolis did see some large declines on the week, likely accounting for some spillover selling in the Canadian futures, amid ideas that the Minneapolis premiums over Kansas City and Chicago were becoming a little overdone. The likelihood of an improvement to the U.S. spring wheat crop in 2012, after a disastrous 2011, was also behind some of the selling there.
ICE durum and barley futures held relatively steady during the week, with no real volumes to speak of in the lightly traded grain markets.
Attention in the CBOT soybean and corn markets during the week was on the U.S. Department of Agriculture’s annual Ag Outlook Forum, held at Arlington, Va. on Feb. 23 and 24. The highlights from a marketing standpoint were the acreage and ending-stocks projections for the upcoming 2012-13 marketing year. The USDA now predicts U.S. corn plantings will hit 94 million acres in 2012. That would be the largest seeded area since 1944, and compare with 91.9 million in 2011. U.S. wheat acres are also expected to increase to 58 million in 2012, from 54.4 million. U.S. soybean acres are forecast at 75 million, unchanged from last year, according to the USDA.
U.S. corn acres will be rising at a time when the country’s ethanol sector is expected to lower its demand for feedstocks. As a result, USDA anticipates the country’s corn carry-out will double to 1.6 billion bushels by the end of 2012-13, from an expected 801 million in 2011-12. That’s just bearish all around, and the ample world feed grain situation should limit the upside potential in the grains — at least until there are some new weather concerns to talk up.
For soybeans, USDA may be predicting a slight increase in production, but the agency also sees exports rising and ending stocks tightening. China especially is expected to be a big customer for U.S. soybeans.
The USDA numbers released during the week were tabulated by economists and other analysts, rather than being the result of an actual survey of producers. The first USDA acreage estimates based on farmer surveys will be released March 30.
The annual “fight for acres” should pick up steam in the month ahead of that report, and in the meantime outside market forces can also be expected to sway the grains and oilseeds one way or the other.
South American harvest results will soon start to become available, and will push prices up or down depending on how badly the crops were actually hurt by the hot, dry conditions during the growing season.
Concerns over winterkill to wheat crops in the former Soviet Union and in Europe are priced into the grain markets for now, but firmer numbers from the region over the next month can be expected to either confirm or disprove those concerns.
Outside macroeconomic issues, including the Greek debt crisis and sabre rattling over Iran, can also be expected to be a factor in the overall appetite for risk, which trickles down to the appetite for commodities.