The path of least resistance for canola futures on the ICE Futures Canada trading platform remained to the downside during the week ended June 14. Declines were influenced by the perception that canola seeding was now complete and that the crop was off to a generally good start, development-wise.
Downward price action was augmented by a generally weaker tone in outside oilseed markets during the week, including Malaysian palm oil, European rapeseed futures and Chicago Board of Trade (CBOT) soybean values.
Farmers, also now confident of harvesting a canola crop in the fall, have begun to unlock their bins of old-crop canola and to deliver to country elevators. Many farmers who have started to move their canola may have had that $700-a-tonne price target in mind, based on conversations with some oilseed brokers — but with recent price weakness, those farmers have decided to take advantage of current values.
There remain opportunities to deliver against the nearby July future, but a lot of outlets are now accepting deliveries against the November contract.
The downside in canola was restricted by scale-down pricing by commercials. A lot of that price action was said to be covering export business as well as domestic crusher requirements. The export demand coming forward was believed to be covering both routine sales and fresh Chinese demand.
Adding to the support in the canola market were concerns about wet, cool weather which has dominated Alberta in particular. The worries were confined to select pockets of the canola-growing regions in that province. However, similar concerns were also now starting to surface in Saskatchewan and Manitoba.
The crop concerns are not likely to send canola significantly higher, but can be viewed as one of those weather scares that have been talked about over the past couple of weeks.
There continues to be absolutely no interest in trading ICE milling wheat, durum or barley contracts.
Bearish soy numbers
CBOT soybean futures were pushed lower during the week ended Friday with weakening demand and a bearishly construed supply/demand balance sheet from the U.S. Department of Agriculture.
USDA left the U.S. soybean supply/demand table unchanged from its May report, with total 2013 U.S. production still estimated at 3.39 billion bushels. U.S. ending stocks were left unchanged, with old crop at 125 million bu. and new crop at 265 million bu.
Globally, USDA trimmed soybean ending stocks for 2012-13 by 1.3 million tonnes to 61.2 million. New-crop ending stocks were also lowered from May estimates by 1.27 million tonnes, largely due to lower beginning stocks.
Weather also played a role in the soybean declines, with the return of warm and dry conditions allowing U.S. farmers to finish off seeding. Improved weather was also seen aiding in the development of the recently planted crop.
The fact U.S. farmers were successful in getting the crop seeded was viewed as bearish for futures. However, there continue to be a few individuals who are adamant U.S. soybean output will be down, given how late the crop was put into the ground, and are certain yields will be well below normal.
CBOT corn values also suffered a price setback during the week with good weather for crop development and expectations of a record-large harvest in the fall.
A bearish aspect of USDA’s report on corn came from its decision to not lower its new-crop supply forecast for 2013-14 by as much as the trade had been anticipating.
USDA now projects new-crop U.S. corn carry-out as of Aug. 31, 2014 at 1.949 billion bu. This would be down from its forecast last month of 2.004 billion, but well above the trade expectations averaging 1.758 billion bu.
USDA made numerous adjustments to the U.S. corn supply/demand balance sheet. It lowered yield by 1.5 bu./ac., citing delayed planting in the western Corn Belt that raised the likelihood that seasonally warmer temperatures and drier conditions in late July will adversely affect pollination and kernel set in a larger share of this year’s crop. It reduced the average yield to 156.5 bu./ac. but made no revisions to planted acreage.
Even with a 135-million-bu. cut, USDA still sees 2013 U.S. corn production at 14.005 billion bu., an extremely large crop.
Meanwhile, USDA increased, rather than lowered, its old-crop U.S. corn ending stocks projection. The old-crop ending stocks projection was raised by 10 million bushels as USDA increased its U.S. corn import total to 25 million bushels.
The slightly larger old-crop carry over (769 million bu.), plus USDA’s adjustments to 2013 new-crop production puts new-crop ending stocks at 1.949 billion bu., 55 million lower than USDA’s May estimate, but well above trade expectations. The stocks-to-use ratio declined slightly to 15.2 per cent, more than double the old-crop ending stocks-to-use ratio of 6.9 per cent.
Globally, old-crop corn ending stocks declined to 124.3 million tonnes from 132.2 million. New-crop ending stocks were lowered by 2.8 million tonnes to 151.8 million on lower forecasted production and feed use.
Wheat futures on the CBOT, MGEX and KCBT generally lost ground during the reporting period, with most of the bearish news associated with the adequate global wheat supply situation. Seasonal pressure also added to the KCBT wheat market given that the harvest of the U.S. winter wheat crop was now underway in select locations.
USDA projected U.S. all-wheat production at 2.08 billion bu., up from May estimates just shy of the highest trade estimate. Of that total, U.S. winter wheat production increased to 1.509 billion bu., higher than trade estimates.
U.S. hard red winter wheat production, at 781 million bu., is two per cent larger than last month’s estimate. USDA also boosted its estimate of U.S. soft red winter wheat production two per cent higher, to 509 million bu. White wheat production increased slightly from May and came in higher than the average trade guess.
U.S. old-crop wheat ending stocks for 2012-13 increased by 15 million bu. due on slower export demand. New-crop 2013-14 ending stocks were lowered by 11 million bu. from May to 659 million bu., within the range of trade estimates, as increased production and export forecasts offset the decline in beginning stocks.
Globally, 2012-13 ending stocks for wheat declined slightly to 179.9 million tonnes; however, 2013-14 ending stocks came in lower than trade estimates at 181.3 million, a 5.1-million-tonne decline from USDA’s May estimates, reflecting lower foreign production.