Canola buyers bide time waiting on new-crop supply

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Canola contracts on the ICE Futures Canada platform had small losses during the week ended Aug. 17, with the advancing harvest operations on the Prairies and pre-hedging by elevator companies, in anticipation of increased deliveries of old-crop supplies and new canola off the combine, behind some of the price weakness.

Canola futures dropped $7.80 to almost $11 during the reporting period. The absence of fresh domestic crusher demand added to the general weakness in canola, with that sector now waiting for cheaper new-crop supplies to be made available before stepping up to the plate. The pricing of old export business by commercials, and some light chart-based speculative and commodity fund buying, helped to provide a firm price floor.

Some of the price action seen in canola was also tied to the evening up of positions ahead of the Aug. 22 crop production report from Statistics Canada, issued after press time last week. This is the first official government survey of what producers seeded to the various grain and oilseed crops in Canada during the 2012-13 season.

Earlier trade talk was that canola yields would not be as good as first indicated, but that is changing and several participants think that canola yields will be above normal if not at record-high levels.

Pre-report production ideas ranged from around the 15.6-million-tonne range to as high as 17 million. Canadian canola output in 2011 totalled 14.2 million tonnes.

Wheat yields in Western Canada were also said to be coming in at above-average levels, with the weather less of a factor than it was for oats and barley this year. However, cereal crops in general were said to be holding trend.

ICE trades slow

Arbitrage pricing again was the main feature of the milling wheat futures contract on the ICE platform. Few to no actual trades were reported in the milling wheat, durum and barley contracts.

Market players are indicating that the absence of activity in those commodities is due to a variety of reasons, the biggest of course being the absence of liquidity. Few of the smaller speculative accounts want to be involved, given that the commercials, who are the only participants, can easily push the market around. In doing so, the game is already stacked against the smaller players.

A large international house trader once indicated that if the exchange had geared these contracts up with the small trader in mind, the larger commercials would have found a way to trade those futures in a successful manner. With the smaller players involved, liquidity would have improved, and the contracts would then begin to thrive. However, until the setup of these contracts stops favouring the commercial sector, the success of these ICE Canada futures remains unclear.

The absence of participation was also being tied to the fact that participants are more than comfortable using alternative commodities at different exchanges.

U.S. markets hot

CBOT (Chicago Board of Trade) soybean futures were narrowly mixed during the week. The arrival of much-needed precipitation in the main U.S. soybean-growing regions helped to spark some of the selling that surfaced in the commodity during the week. The taking of profits also fuelled some of the price weakness. However, the need to ration supply, as export and domestic usage of the commodity remains strong, helped to generate strength. The tight U.S. and world soybean supply situation also provided strong support for futures.

Underlying support in soybeans was also coming from talk that crop tour scouts were indeed finding that yields will be below normal.

Corn futures on the CBOT generally lost ground during the reporting period. Profit-taking and the absence of demand from end-users accounted for the price declines. Some chart-related speculative and commodity fund liquidation orders also stimulated the downward price slide.

The losses in corn, however, were restricted by the fact that supplies of the commodity are extremely tight. Demand rationing was also evident and helped to slow the price drop.

Wheat futures on the CBOT, MGEX and KCBT generally lost ground during the week. Losses were influenced by the quick pace of the spring wheat harvest in the northern-tier U.S. states and by reports of much better-than-anticipated yield potential. Larger-than-anticipated stocks of U.S. wheat also added to the bearish sentiment in the market. Profit-taking also helped to undermine values.

The declines in wheat, however, continued to be offset in part by ideas that with wheat output in Ukraine and Russia not meeting expectations, importers will need to turn to the U.S. to cover requirements. This in turn has caused a bit of a run on the wheat supply situation in the U.S.

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