Fuzzy ending stocks picture supports canola values

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Canola prices at the ICE Futures Canada trading platform closed the week ended June 8 on a firmer footing. Canola was underpinned by the need of domestic processors to cover nearby commitments and by the general strength displayed by the Chicago soybean complex.

Growing concern about the tight global oilseed ending stocks picture, for this year as well as next year, contributed to the upward price momentum seen in canola. Those ideas were facilitated by the ever-declining South American soybean production forecast, problems with Europe’s rapeseed crop and the poor weather for the development of the U.S. soybean crop. Western Canada’s canola crop is also far from a certainty, with some areas too dry while other areas, especially eastern regions of the Prairies now experiencing excessively wet conditions.

Much of the action in canola beginning this week will consist of spreading, as both the large corporate and smaller fund accounts begin rolling positions out of the July future and into the November contract ahead of July becoming a cash delivery month.

There were some price fluctuations in both the milling wheat and durum contracts on the ICE platform, but next to no volume posted.

Chicago soybean and corn futures posted moderate to sharp gains with weather issues providing most of the upward momentum. Macroeconomic concerns also played a huge role in the price movement seen in Chicago, with values one day finding excellent support from reports the European money problems were easing. However, the next day, the concerns again resurfaced, eliminating some of the price strength.

This trend of “good, then bad” European money news is not likely to end any time soon.

Most of the weather gains were tied to the dry growing conditions in the U.S. corn- and soybean-growing regions, and ideas that the heat was reducing the yield potential of both crops. Both crops can ill afford to lose production potential given the tight old-crop supply situation.

Soybeans were further underpinned by steady demand from the Chinese. Strength in the cash market helped to provide some additional support for corn futures.

U.S. wheat futures also managed to climb to higher ground in all three markets. Some of the gains came amid sentiment that values were significantly oversold after recent losses and were due for an upward correction. Continued speculation that the Russian and European wheat crops are suffering from the lack of precipitation further bolstered prices.

The upside in the Kansas City (KCBT) wheat market, however, was restricted by the advancing U.S. winter wheat harvest and reports that those yields were surpassing early expectations by a significant level.

During trading

The U.S. Department of Agriculture will have released its first supply/demand report during actual trading hours by the time this article is published. A lot of the guesswork that would normally go into the pre-report expectations will definitely be taken out of the market. However, even without the pre-survey-based figures, the numbers do need to be considered carefully.

In regards to soybeans, the old-crop ending stocks forecast for soybeans and corn will be significant factors in the price outlook moving forward. World corn and soybean ending stocks will also need to be considered carefully as well as any acreage shifts.

The U.S. acreage numbers are unlikely to have changed much in the supply/demand tables, but will be a prelude to the updated June 29 acreage survey scheduled to be released by the USDA.

Statistics Canada will also be releasing an updated seeding intentions report on June 27, with most industry analysts already expecting a jump in the area seeded to canola.

The USDA supply/demand tables, in particular, will help set the stage for canola values leading up to the acreage reports.

There will need to be confirmation of the tight global oilseed stocks situation in order for canola to make a push back to the highs it experienced earlier this spring. If the numbers are larger than expected, it will support the view that canola prices have passed their highs.

There has been a slowdown in the crush pace this week and that will have to be watched to see if it is cutting into everyone’s expectations for a record crush pace in 2011-12.

While canola will not be able to stage any rally on its own without help from the major oilseed and vegetable oil markets, it can likely hold a stronger premium.

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