Canola futures see downward price action

Canola futures on the ICE Canada platform experienced some weakness during the week ended November 9 with the bearishly construed USDA supply-demand balance tables for soybeans encouraging some of the downward price action. A larger-than-anticipated U.S. soyoil ending stocks estimate from the USDA added to the bearish sentiment in canola.

The unloading of positions by a variety of market participants during the reporting period also helped to undermine canola futures. Some of that selling was based off of the charts turning negative as well as ahead of the three-day weekend closure of the ICE Futures Canada platform (November 12). The weakness in canola also was facilitated by reports of improved weather for the planting and development of the soybean crops in Brazil and Argentina.

Underlying support in canola continued to come from the need of commercials to cover export commitments and from domestic processors to secure enough canola in order to meet sales on the books. The reluctance of farmers to deliver canola also restricted the losses.

Deferred canola futures meanwhile found some support from sentiment that values will need to climb significantly from current levels in order to buy acreage next spring. There was speculation in the market that acres to canola will drop significantly as Prairie farmers look to finally move canola out of crop rotation and into more financially attractive choices.

There was some arbitrage pricing evident in the ICE Canada milling wheat future during the week, but nothing in the way of actual volume. Durum and barley activity was also non-existent. ICE Canada officials, however, remain optimistic that trade in these contracts will pick up as grain companies learn to work with the new non-monopoly wheat markets in Western Canada.

Market participants, however, doubt the sincerity of the commercials to use the risk management tools of the ICE Canada platform given that these firms are more than comfortable using the exchanges in the U.S. to hedge wheat, durum and barley positions.

Soybean futures at the CBOT suffered some pretty steep losses during the reporting period with a drop-off in export demand and the expectation of larger-than-anticipated U.S. soybean production being reported in the November 9 supply-demand balance tables from the USDA, behind the price decline.

Soybean values easily dropped to new four-month lows on the USDA report, which pegged U.S. 2012-13 soybean output at 2.971 billion bushels. The projection easily came in at the high end of pre-report expectations that ranged from 2.720 billion to 2.959 billion bushels. U.S. soybean production in October had been forecast by the USDA at 2.860 billion bushels while output a year ago totalled 3.094 billion.

U.S. soybean ending stocks were raised by 10 million bu. to 140 million, and while that may not be all that shocking, it does ease the fear of the U.S. running out of soybeans this year.

From a global perspective, world soybean carry-out was raised to 60 million tonnes from the 57.6 million projected in October. This estimate based on comments from market participants, suggests that there is plenty of supply worldwide. Add to that the record area that is currently being planted to soybeans in South America, and the big picture does not seem to be as rosy as it once did.

Corn futures on the CBOT managed to hold fractional advances during the reporting period. Some support came from reports that delays in shipping corn out of Brazil have forced Japanese buyers to turn to the U.S. to cover some nearby commitments. The talk in the trade is that Japan had purchased roughly 900,000 tonnes of corn from Brazil for shipment from July through September. However, heavy port congestion has prevented that corn from moving. As a result, export sources were indicating that at least 500,000 tonnes of U.S. corn have been bought by Japan for movement during the January to March period. Japan reportedly also purchased U.S. barley for the first time in over two years.

The USDA report, meanwhile, pegged U.S. corn ending stocks at 647 million bu., which was up from the October projection of 619 million. The estimate was also at the high end of pre-report guesses. The numbers were considered by the trade to be nothing special and were unlikely to significantly break corn out of its consolidation phase of price movement.

The price trend in wheat futures on the CBOT, MGEX and KCBT was up with the extremely dry conditions in the U.S. Winter Wheat Belt providing the price advances. Lingering worries about poor growing conditions for wheat in other major producing regions of the world also added to the support in the market.

The release of the USDA report, however, changed the bullish tone that had existed in U.S. wheat. While there had been hopes the USDA would raise its U.S. wheat export prospects, the government agency actually lowered the forecast.

Sluggish wheat exports and expectations that world competition will remain strong encouraged the USDA to increase its U.S. wheat inventory forecast to 704 million bu. This represents a 7.6 per cent jump in supply from the October projection.

World wheat carry-over in 2012-13 was pegged by the USDA at 174.2 million tonnes, which was up from the 173.0 million projected in October.

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