Canola markets take a tumble

Bearish Great spring seeding conditions and the potential for record canola acreage contributed to the bearish market sentiments last week

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Canola contracts on the ICE Canada platform experienced some significant losses during the week ended May 11.

The sharp sell-off in the CBOT soybean complex helped to encourage the downward price slide as did renewed macro-economic issues which triggered some aggressive liquidation of long positions by speculative fund accounts. The triggering of sell-stop orders on the way lower, further exaggerated the price weakness in canola.

An improvement in the weather, allowing producers an opportunity to seed record area to canola this spring in Western Canada, also contributed to the bearish price atmosphere. Scale-down demand from commercials helped to slow the drop in canola, with most of that interest said to be covering old export business and some minor domestic processor requirements. A slowdown in farmer selling, as producers concentrate on spring field work, further tempered the price declines.

The grain stocks in all positions report, released by Statistics Canada on May 7, also provided some minor support.

The government agency pegged canola supplies in Canada on March 31, 2012, at 4.273 million tonnes. Canola stocks at the same time a year ago were 6.157 million tons. A reduction in U.S. and global soybean supplies by the USDA in its report on May 10, helped to restrict the price declines seen in canola.

There was some arbitrary price movement seen in milling wheat and durum contracts on the ICE Canada platform. However, the new barley contracts experienced some small, but noticeable volume totals during the week. Most of the action was conducted between commercials.

Chicago Board of Trade soybean futures posted some significant declines during the reporting period with macroeconomic issues and the resulting liquidation of long positions by commodity fund accounts the key downward influence. The activation of sell-stop orders on the way down, amplified the price weakness.

Soybeans had been sitting at their highest level in four years last week. Favourable weather for the planting and development of the U.S. soybean crop contributed to the bearish sentiment. The USDA pegged soybean planting intentions in the U.S. at 73.9 million acres in its supply-demand reports released on May 10. There are widespread ideas that final U.S. soybean acres will be higher, possibly considerably higher.

The losses in soybeans were offset by the tighter-than-expected U.S. soybean ending stocks projection for both old and new crop. The USDA estimated U.S. soybean stocks as of August 31, were likely to drop to 210 million bushels, which compares with the 250 million projected a month ago and down 2.3 per cent from the year-earlier forecast. The USDA’s ending-stocks forecast for the end of the next marketing year is even lower at 145 million bushels.

Corn futures on the Chicago Board of Trade were down on the week with losses associated with the unexpected jump in near-term corn supplies by the USDA in its recent supply-demand balance sheets.

In its monthly supply-and-demand report, the USDA pegged U.S. corn inventories as of Aug. 31, the end of the current marketing year, at 851 million bushels, up 6.2 per cent from the agency’s previous forecast of 801 million bushels.

U.S. corn production, meanwhile, was expected to rise this year to a record of 14.79 billion bushels, from 12.358 billion bushels last year, as a fast start to the planting season could boost yields to a record 166 bushels an acre, the USDA said.

Wheat futures at the CBOT, KCBT and MGEX were lower on the week. The active seeding pace of the U.S. spring wheat crop helped to fuel the price declines as did the favourable weather and the quick development of the U.S. winter wheat crop. The losses in corn and the more-than-adequate global supply of wheat also were undermining price influences.

Other than the canola projection in the stocks report coming in tighter than anticipated, there were few other Canadian numbers that held any major surprises. Durum stocks at 3.002 million tonnes were on the high side and with anticipated large acreage this spring, could limit the upside potential in prices.

The all-wheat stocks number of 14.479 million tonnes was at the lower end of expectations and suggests that usage of the commodity as a feed was greater than what had been anticipated.

Other than that there were few surprises in the stocks figures. However, the big question being asked is whether the uptrend in the oilseed sector is over, or whether this can be viewed as a necessary, but temporary setback. Normally, when there is such a huge price swing on a Friday, the Monday, or next business day, sees a correction in price direction. Some market participants were also unsure of what exactly caused the sell-off, noting that if there was a true sell-off because of the global economic worries, crude oil and the equity sector would have suffered greater losses than what those markets did.

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