For Don Bousquet’s three times daily market reports, visit www.albertafarmexpress.ca
Grain and oilseed prices at the ICE Canada futures market have moved lower since my last column. The firm Canadian dollar weighed on prices. Canola was undermined by losses in the Chicago soyoil market and the absence of fresh demand. China has withdrawn from the market and the crush rate is still running at a slower pace than earlier in the year. Weather problems for the crop were supportive, but were offset by forecasts that conditions would start to improve in mid-June.
Farmer selling, other than through delivery contracts, remained light and that limited the decline. The stronger U.S. soybean market had limited support for canola as it reflected demand for soymeal. Exporter and crusher buying was augmented by some speculative buying. The selling was mostly commercial with only light elevator company selling noted.
Western barley posted small losses as there is little interest in the current futures contract as traders wait for the new contract to be introduced June 22nd. ICE has unveiled a new feed barley contract to begin trading in June which shifts the delivery point from Saskatchewan to southern Alberta, the main cattle-producing area in Canada.
CORN AND SOY MIXED
Chicago corn and soybean futures were mixed, with soybeans higher and corn lower as the U. S. dollar gyrated around. Soybeans were lifted early by tightness in old-crop supplies as USDA forecast that soybean supplies will only be available for 13 days of demand at the end of the 2008-09 crop year. The new crop was lifted by more rain hampering planting. However, values began to drop off as demand is slowing, weather is improving for the crop and the speculative commodity funds started to take profits.
Corn futures fell on profit taking and steady farmer selling. Limiting the decline was recent problems that resulted in USDA lowering the average U. S. corn yield for 2009 by two bushels/acre in its report on June 10.
U.S. wheat futures have declined as the market focused on the sluggish export demand and competition from a large global wheat supply. The weakening changed the charts from friendly to bearish and that triggered heavy speculative selling, mainly from commodity funds, which sent the markets down.
PRAIRIE CROPS DOWN SHARPLY
The market outlooks were dominated by two major reports in mid-June as USDA brought out its latest supply-demand reports and the Canadian Wheat Board had its crop production briefing with its current crop estimates.
For wheat, the CWB said the Canadian crop would most likely be 20.8 mln tonnes, down from last year’s 25.5 mln tonnes as lower yields cut into the output. This will mean relatively tight ending stocks and the international situation suggests that there will be good prices for good-quality milling wheat.
The USDA wheat supply-demand reports were less friendly for the market despite a big drop in U.S. wheat output. USDA forecast the U.S. wheat crop at 2.016 bln bushels, down from last year’s 2.5 bln, due to poorer yields and lower acres. This will cause U. S. 2009-10 ending stocks to fall to 647 mln bushels from the 2008-09 level of 669 mln bushels. USDA reduced both exports and domestic demand for wheat
and that accounted for ending stocks not dropping as much as the crop.
Globally, USDA actually raised world 2009-10 ending stocks to 182.7 mln tonnes from 168.46 mln in 2008-09. It pegged the world wheat crop at 656 mln tonnes, which is likely overly optimistic. The German analytical group, F.O. Licht, has the world crop at 650 mln tonnes. Current firm wheat market prices would seem to suggest lower ending stocks. The global wheat outlook is still strong and Canadian farmers will see prices over $8/bu.
BARLEY AND CORN LOOK STRONG
For barley, the CWB estimated the crop at 8.9 mln tonnes, down from 11.2 mln tonnes in 2008 as lower acres and lower yields reduced the crop. This production number may prove to be too low as a lot of canola land is being reseeded to barley. Regardless, barley production will be below consumption and prices are going to be much stronger. We will see barley rally back to the $5/ bu level, certainly in Alberta.
The U.S. corn outlook is very bullish and supports a farm gate corn price of US$5/ bu in the new crop. USDA reduced the U.S. corn yield for 2009 by two bushels/acre. While estimating the 2009 corn crop at 11.9 bln bushels, USDA forecast consumption at 12.5 bln bushels and 2009-10 U.S. corn ending stocks at 1.09 bln bushels, down from 1.6 bln in 2008-09 and just above the critical one bln bushel level. It made no adjustments in acres and traders do feel acres are also down significantly. This provides a very bullish backdrop to barley and supports $5/ bu barley, at some point in the new crop year.
BEANS IN THE TEENS?
The CWB said the canola crop was likely to be 10.2 mln tonnes, down from 2008’s record 12.6 mln tonnes. The grain trade generally agrees with this estimate. Lower acres and yields accounted for the decline. This supports very tight 2009-10 canola supplies and ending stocks well below 1 mln tonnes, likely around 750,000 tonnes. This will keep canola very firm this fall and winter with values near and above $10/bu with futures rallying back to the $500/tonne level. Tight basis and tight supplies will see cash canola bids likely rise as high as $12/bu in the peak demand times.
The USDA soybean report as also quite friendly, but there are some clouds in this outlook which will ultimately affect canola prices. USDA lowered the 2008-09 U.S. soybean ending stocks to 110 mln bushels from the last estimate of 130 mln bushels. This is the tightest level since the 1970s. We are likely to see old-crop soybean get into the teens in 2008-09.
The lower 2008-09 ending stocks helped to bring down the 2009-10 ending stocks to 210 mln bushels from the previous estimate of 230 mln. This would be supportive for the market, but USDA made no changes to either the yields or the acres.
The trade does expect the yields to be lower than the USDA forecast, but also expects acres to be significantly higher. The result will be higher 2009-10 ending stocks. However, the stocks look like they will not be as burdensome as first feared. The feeling is that the price is likely to remain strong in the $10-$11/bu area on the futures with movement to the $12/bu area occasionally. Any substantial problems with the South American crop or larger Chinese demand will result in soybeans and canola hitting the teens/bu in 2009-10.
– Don Bousquet is a well-known market analyst and president of Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.