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Futures Markets Begin To Show Some Strength

For Don Bousquet’s three-times-daily market reports, visit www.albertafarmexpress.ca

(November 17)

Grain and oilseed prices at the ICE Canada futures market have rebounded since my last column with canola lifted by gains in the Chicago soy complex. Slower farmer selling, as the harvest winds down, also gave some support. Friendly technical signals helped to lift the market. Gains in canola were smaller than the U.S. soy complex as the strengthening Canadian dollar restrained the advance. The Chinese refusal to accept canola with blackleg was unresolved and that also weighed on the market. Western barley was little changed in the winter futures contracts, but saw declines in the spring and summer contracts. Those contracts were pressured down by expectations for rising ending stocks of barley.

Chicago soybean and corn futures posted gains as well. Soybeans were boosted by exceptionally strong export demand as China continued to be a major buyer of U.S. soybeans. A slower pace to farmer selling, as the harvest started to wind down, contributed to the gains. Friendly technical signals and the weak U.S. dollar also gave support. Corn futures moved higher on expectations for a smaller U.S. crop with crop-quality problems also giving support. Rain in the forecast, which would halt harvesting, also helped to lift the market. Friendly technical influences encouraged some of the gains in corn.

U.S. wheat futures posted solid gains despite all the news being bearish. Sluggish exports, rising ending stocks of wheat in the U.S. and the world and better weather for planting the U.S. winter wheat crop should have sent the market lower. However, wheat ended with solid gains. Traders are blaming it on the move of speculative money from commodity funds into the wheat market which is lifting prices.

BLACKLEG PROBLEM LINGERS

The Chinese have proposed an unsatisfactory resolution to the problem of canola exports that contain blackleg. The Chinese have said that a certificate is still needed to be issued by Canada and that any canola with blackleg would go to ports that are distant from rapeseed-growing areas.

The problem is that these ports are far from the main crushers as well and would make Canadian canola too expensive.

However, it is still interesting that the overriding attitude in the grain trade is that a resolution will be found and will be announced by early December.

CORN LEADS MARKET HIGHER

USDA brought out its latest production and supply-demand reports on Nov. 10 and is suggesting that the lows have been put in for corn and possibly for soybeans and that the corn situation will lead the entire market higher.

It is an amazing about-turn that the corn market, which was considered the most bearish two months ago, is now becoming the driver of the markets. Shows you how much you can trust analysts.

USDA pegged the U.S. corn crop at 12.921 bln bushels, below trade forecasts and below the Oct. forecast of 13.018 bln bushels. Lower yields due to poor weather accounted for most of the decline. U.S. 2009-10 ending stocks were pegged at 1.625 bln bushels, down from the Oct. forecast of 1.672 bln bushels.

Globally, USDA pegged the world 2009-10 ending stocks at 132.4 mln tonnes, down from the Oct. forecast of 136.3 mln tonnes.

Both ending stocks numbers are thought to be inflated. The U.S. ending stocks number is likely to come in around the one-bln-bushel mark ultimately as production is expected to be cut. In addition the poor quality of the crop will prompt increased usage to offset the quality problems.

The global number is felt to be overstated by as much as 10 mln tonnes as USDA is carrying a Chinese corn crop estimate of 155 mln tonnes while much of the trade feels their crop is actually 145 mln tonnes.

As a result, traders feel the lows are in for the corn market and that corn prices are getting ready to break above the $4/ bu. level and will likely stabilize in the $4-$4.50 area.

USDA pegged the U.S. 2009 soybean crop at 3.319 bln bushels, above trade forecasts and up from Oct.’s 3.25 bln bushels. Better yields accounted for the record-large crop.

The U.S. 2009-10 soybean ending stocks were pegged at 270 mln bushels, well above trade forecasts and up from October’s 230 mln bushels. Higher exports and a higher crush pace kept the U.S. ending stocks from seeing an even bigger increase.

Globally, USDA estimated the 2009-10 soybean ending stocks at 57.39 mln tonnes, up from the Oct. forecast of 54.79 mln tonnes. Of course this is based on record South American production which is not a sure thing at this point, as the crop is not planted.

On top of that, Chinese soybean demand continues to expand making record U.S. and South American output necessary. Something that will also help pull the U.S. soybean ending stocks down is the fact that the poor quality of the corn crop will result in greater demand for soybean meal.

Everything points to U.S. soybeans trading in the range of $9.50-$10.50/bu. in 2009-10. This is a solid backdrop to the canola market.

WHEAT FUNDAMENTALS WEAK

The USDA report had only bearish news for the wheat market. It pegged the U.S. 2009-10 ending stocks at 885 mln bushels, above trade forecasts and up from Oct.’s 864 mln bushels. This a 20-year high and suggests lower prices. Lower exports accounted for the increase.

Globally, USDA pegged 2009-10 wheat ending stocks at 188.3 mln

tonnes, up from the Oct. forecast of 186.7 mln tonnes. All of this suggests lower prices, yet the market is up. Some attribute it to the falling U.S. dollar and the move into commodities by speculators.

The strength in corn and soybeans is also giving some support to wheat. There is also a view that the quality problem in the U.S. corn crop will result in increased feeding of wheat to livestock. This is expected not only in the U.S. but globally as corn prices rise.

The feeling is that the wheat outlook, while not bullish, is certainly friendlier than many analysts are forecasting.

The true size of the U.S. soybean and corn crops will not be known before Jan as the Dec. USDA report does not interview farmers to achieve its production numbers. Analysts note that these early yields in the Nov. report represent the best of the crop and that the harvesting done later, which won’t be revealed till January, will show the yield in the crops that were plagued by excess moisture, freezing temperatures and the delayed harvest.

– Don Bousquet is a well-known market analyst and president of Resource News International (RNI),a Winnipeg company specializing in grain and commodity market

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