Canola futures on the ICE Futures Canada trading platform were mixed during the week ended Jan. 20, with the nearby months seeing small gains while the deferred values were slightly weaker. A continued strong export lineup at Canada’s West Coast, along with strong domestic demand from the processing sector, helped to generate some of the strength. The arrival of beneficial precipitation in the soybean-growing areas of Brazil and Argentina sparked some of the weakness in the market.
Record canola acreage forecasts for the spring of 2012 also had bearish price implications.
A lot of the action seen in canola over the past week was tied to participants starting the process of rolling positions out of the nearby March future, ahead of the contract becoming a cash delivery month. Both the large and small commodity funds like to move positions roughly a month and a bit ahead of it becoming a cash delivery contract.
Western barley futures on the ICE Futures Canada platform remained in dormancy during the latest week. The launch of the new milling wheat, durum and barley contracts on Jan. 23 on the ICE platform will eventually replace the western barley contract. Cash bids for feed barley in Western Canada, meanwhile, softened in response to increased inventories of U.S. corn.
Chicago Board of Trade (CBOT) soybean futures moved to higher ground during the period ended Jan. 20. Sentiment that soybean values were oversold and due for an upward technical correction helped to generate some price strength. The buying back of previously sold positions further underpinned soybean values as did the emergence of some fresh buying interest from China. Firmness in the cash market also added to the friendly price tone.
The upside in soybeans was restricted by improved growing conditions for soybean crops in South America as well as by some late-week firmness in the U.S. dollar. Some renewed concerns among speculative fund participants regarding the financial problems in Europe also helped to temper the upside price potential.
CBOT corn futures were mixed with the nearby months up and the deferred values down. Much of the support was derived from ideas values for the commodity have finally declined far enough to stimulate some nearby demand. The buying back of previously sold positions and firmness in the cash market also underpinned values.
Weakness in the deferred values reflected talk that the area seeded to corn by U.S. producers in the spring of 2012 will be higher than originally expected. The more-than-adequate supply of grain on the world market also helped to influence some selling.
Wheat futures at the CBOT, KCBT and MGEX generally lost ground, with the bearish global supply situation and private estimates increasing the amount of area that will be planted to U.S. spring and durum wheat in the spring of 2012 behind the declines. Demand for U.S. wheat also continued to be absent, adding to the overall bearish price tone.
Some support in wheat, however, came from oversold ideas.
The market analysis division of Agriculture and Agri-Food Canada has released its first look at the 2012-13 crop year, including bumping up the acreage estimates for most crops. Much of the jump in seeded area this spring will come as Prairie producers put back into production a lot of the fields that were flooded out in Manitoba and Saskatchewan last spring. In fact, the area left as summerfallow was predicted to come in at a modern-day low of only 6.3 million acres. With all the flooding and other issues, summerfallow in 2011 in Canada totalled 12.41 million acres in comparison.
The Agriculture Department expects Canadian producers to seed a record 19.768 million acres to canola in the spring, surpassing the record 18.862 million acres that were put in the ground in the spring of 2011. Canadian canola production was seen rising to a record 15 million tonnes from the previous record of 14.165 million established in 2011-12.
Another interesting acreage projection was the estimate made for barley. While the jury is still out on whether the removal of barley from the Canadian Wheat Board had any impact on the seeded area forecast, the fact of the matter is that area will be up significantly.
The market analysis division pegged seeded area to barley in the spring of 2012 at 7.907 million acres, which compares with 6.472 million the year previous. Barley output in Canada, as a result, was seen hitting the nine-million-tonne level in 2012-13. In 2011-12 barley production in Canada was 7.756 million tonnes.
With the increase in production prospects in Canada, South America and even in the U.S., there have been a lot of participants anticipating grain and oilseed markets will be suffering some serious setbacks in the not-too-distant future.
However, I was reminded by an individual who was a little bit skeptical of all the recent bearish price outlooks that nothing is ever as it seems and to certainly use some caution in deciphering this information.
Using the canola futures as a prime example of how fast things can turn around, the source said, “It was around Jan. 20 in 1988, the canola future was trading around the $210-per-tonne level… However, all it took was a bit of drought, and the futures price for canola by June 18 that same year was sitting at $488 per tonne.”
As a result, any sign of drought this spring and summer in either Canada or the U.S., could change the bearish fortunes being forecast very rapidly.