Old-crop canola contracts climbed to new highs on the ICE Futures Canada platform during the week ended April 27, as the tight supply situation in Western Canada provided underlying support. Commercials were also scrambling to cover their short positions rather than be forced to make deliveries on the nearby May contract before it comes off the board. The new-crop months were also up on the week, although the gains there were more subdued and resistance was holding to the upside amid expectations for a record-large canola crop.
Statistics Canada released its first acreage projections of the year on April 24, forecasting canola area at a record 20.4 million acres. While that would be 1.5 million acres above the previous record, set in 2011, the tight supply projections mean that the area will be needed to meet the solid demand. Over the past few years, actual canola seedings have generally gone up by 500,000 to one million acres from the initial estimates in subsequent StatsCan reports. Even under that scenario, weather conditions over the growing season, and their impact on yield projections, will be important to watch from a marketing standpoint.
Old-crop canola prices could conceivably keep rising to the $700-per-tonne level, but exactly how much is left to be priced that high remains to be seen.
Soybeans in Chicago saw a similar price move during the week, climbing sharply in the front months and lagging to the upside in the new-crop futures. Declining crop prospects out of South America, together with solid demand for U.S. beans from China, was behind some of the strength as the market works to ration nearby demand.
While “overbought” and “in need of a profit-taking correction” would both describe the current state of the canola and soybean markets, there is a case to be made that any correction would be met with solid buying interest.
In canola’s favour, China remains an active buyer and there are indications that more shipments to the country are likely. China’s National Grains and Oils Information Centre released a report during the week predicting an increase in rapeseed oil imports to one million tonnes in 2012, from about half that in 2011. Seed imports are also forecast to rise to two million tonnes, from 1.26 million, as relaxed blackleg restrictions are allowing more Chinese crushers to bring in Canadian canola. Looking further out, the centre is predicting canola imports will rise to three million tonnes or more over the next few years. Canada accounts for the bulk of the canola and canola oil moving into China, but even if that demand is picked up by someone else, it would provide underlying support for the Canadian market.
Activity in the grains was a little more mixed during the week. The nearby corn contracts in Chicago climbed sharply higher, also due to strong Chinese demand and tightening supplies. Chicago wheat futures moved up in sympathy with corn, and also found some support on ideas that the early development of the U.S. crop would leave winter wheat in the country susceptible to a late frost.
However, the spring wheat futures in Minneapolis moved down during the week. The Minneapolis futures are more closely related to the Canadian wheat market, and the losses there were linked to the quick seeding pace and the expectations for a much better U.S. spring wheat crop this year. Spring wheat plantings are running well ahead of normal in the U.S., as growers in the northern-tier states benefit from good seeding conditions.
Early Canadian seeding reports are also starting to trickle in, and should only gain steam over the next few weeks. Seeding weather, as always, will be a factor in the grain and oilseed markets — at least for the new-crop months. For the old crop, there may be some more fireworks in store, but it’s anybody’s guess how long the show will last.