U.S. weather rally buries bearish acreage reports

Parts of Western Canada may have seen some heavy rain during the week ended June 29, but it was the lack of moisture south of the border that was behind most of the sharp gains in North American grains and oilseeds during the week.

The majority of the U.S. Midwest’s corn- and soybean-growing regions could really use a drink, and the longer the forecasts remain hot and dry, the longer the weather rally could continue. New contract highs were hit in CBOT (Chicago Board of Trade) soybeans, corn and wheat during the week — with the largest gains in corn, which is most susceptible to yield reductions at this time of year.

Canadian canola futures came along for the ride, hitting new highs as well before running into some upside resistance. The November contract finished the week just a few dollars below the psychological $600-per-tonne level, and a break above that chart point could set the stage for a rally into the $650 level if U.S. fundamentals remain supportive in the background.

The U.S. weather rally was so overpowering that a couple of relatively bearish acreage reports on both sides of the border were quickly swept to the sidelines. Statistics Canada released updated acreage estimates on June 27 pegging canola area at a record 21.3 million acres. While the headline number was in line with trade estimates, it still represented a significant jump above the previous record of 18.9 million acres set only last year.

The U.S. Department of Agriculture raised its acreage expectations for both soybeans and corn in that country to levels at the high end of trade guesses. However, declining yield prospects were taking precedence over how much land may or may not have been seeded.

U.S. corn acres were estimated at 96.4 million, which compares with 91.9 million in 2011. Soybeans were pegged at 76.8 million, from 75 million last year. Overall U.S. wheat acres were also up on the year; however, the total spring wheat number could be seen as slightly supportive for prices. USDA estimated U.S. spring wheat area at 12 million acres, which would actually be down from the 12.4 million seeded in 2011.

The weather is really the only thing anyone in the agriculture markets is talking about these days, but European economic issues also continue to percolate in the background. The global equity and currency markets saw some wild price swings during the week in response to the latest news out of the region. As of Friday, the most up-to-date news was that European leaders had come up with a plan to deal with the debt crisis, which triggered a round of speculative buying in many markets. Crude oil jumped by over US$7 per barrel, the Canadian dollar gained more than a penny relative to its U.S. counterpart, and stock markets rose around the world.

However, if the past couple of months are any indication, any optimism out of Europe may prove short lived. Agriculture markets may be in the midst of a weather rally, but it’s worth noting that the speculative money could easily find someplace else to go if global financial jitters come forward again.

Closing time

In other news, Canadian traders, and those who follow the markets, were forced to work an extra 45 minutes a day during the week, as ICE Futures Canada bumped its daily close back to 2 p.m. Winnipeg time from the traditional 1:15 p.m. close. The move was made to put the Canadian hours in line with the recently expanded U.S. markets. While it may be too soon to pass judgment on the longer hours, the volumes in canola could best be described as somewhat subdued during the week. Two key acreage reports were released and prices may have hit new highs, but actual activity in terms of contracts traded was not that much different than the previous week. As a percentage of open interest, volumes were actually a little softer than the same period a year ago.

Milling wheat, durum and barley futures at ICE Futures Canada saw no actual trade during the week, but the rallying U.S. grain futures were enough to generate bids and offers to pull the wheat and barley prices quoted by the exchange higher during the week. With only one more month until the shift to a total open market for wheat and barley, time may be running out for the Canadian grain futures if trade doesn’t pick up soon.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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