Lower loonie keeps support under canola on downtrend

USDA's ending stocks estimates are bearish for wheat

ICE Futures Canada canola futures continued their recent downward trend during the week ended Jan. 10, holding just above record lows in the nearby contracts.

The burdensome supply situation continued to overhang the canola market during the week, as did the technical bias that remains pointed lower.

Canadian farmers produced a record-large 18 million tonnes of canola this year, and the industry only expects supplies to continue growing in the years to come.

The Canola Council of Canada (CCC) held a press conference in Winnipeg on Jan. 9 to announce its new target to grow 26 million tonnes of canola in Canada by 2025. This comes after the council’s goal of 15 million tonnes by 2015 was surpassed this year.

The council said it hopes to reach that goal by achieving an average yield of 52 bushels per acre by 2025. This year, the Canadian average yield for canola was 40 bushels per acre, Statistics Canada data shows.

That raises many questions, such as where are the acres going to come out of to grow that much canola, is there enough global demand for it, and how is Canada’s logistical system going to be able to handle such a large crop?

Canada’s grain-handling system is already having trouble moving canola and the other large crops that were grown this year, which is suppressing prices. What will it be like when 26 million tonnes of canola are grown? I guess we’ll find out in 2025.

But it wasn’t all bad for canola futures during the week, as the sharp downswing in the value of the Canadian dollar helped to keep a firm floor under the market. The dollar lost more than 2-1/2 cents during the week, which helped to uncover some buying interest from crushers and exporters.

The market also received some spillover support from the gains seen in Chicago soybeans. The long-term trend remains bearish for canola, though, as competing vegetable oil prices, including Chicago soyoil, show signs of weakness.

Prices may move down to the C$350- to $400-per-tonne range by spring, which wouldn’t be too shocking to the trade, as it wasn’t that long ago that $450 per tonne was the top of the market.

Soybean prices were a mixed bag during the week, with nearby contracts posting gains, and deferred contracts moving lower.

Continued strong export demand and worries about tight nearby domestic supplies, as confirmed in the Jan. 10 report from the U.S. Department of Agriculture, helped to lift the March and May 2014 contracts.

USDA reported 2013-14 ending stocks of soybeans in the U.S. are expected to be 150 million bushels — unchanged from the December report, but below average expectations of 151 million bushels.

World ending stocks for the year are expected to rise to 72.33 million tonnes, up 1.71 million tonnes from the previous report, due to larger global production.

Those expectations, combined with good weather for an expected record-large South American soybean crop, put downward pressure on the deferred Chicago soybean contracts.

Wheat estimates bearish

USDA’s report was also bearish for Chicago, Kansas City and Minneapolis wheat futures, as the government agency pegged U.S. and global ending stocks above expectations.

U.S. ending stocks were upped to 608 million bushels by USDA from 575 million bushels in the December report, topping the high end of expectations. The increased ending stocks were due to reduced feed and residual usage.

USDA increased global ending stocks of wheat to 185.4 million tonnes, from 182.78 in December.

USDA did, however, provide some good news for the corn futures market in Chicago when it unexpectedly lowered its U.S. production estimate for 2013.

Prices skyrocketed, gaining 15 to 20 cents per bushel in some contracts after the report, which helped prices end higher on the week.

USDA pegged domestic corn production for 2013-14 at 13.925 billion bushels, down from the December estimate of 13.989 billion due to a slightly lower average yield. The trade was expecting the government agency to increase production to more than 14 billion bushels.

Lower U.S. and global ending stocks also helped to lift the corn market, with USDA pegging domestic ending stocks for 2013-14 at 1.631 billion bushels, down from 1.792 billion, due to increased feed and ethanol demand. Global ending stocks were down 2.23 million tonnes, to 160.23 million.

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