For Don Bousquet’s three times daily market reports, visit www.albertafarmexpress.ca
Grain and oilseed futures at the ICE Canada futures market have generally worked lower since my last column. Canola saw bigger losses in the new crop than the old crop as tightness in the cash market on strong demand and disciplined farmer selling kept supplies relatively tight in the old crop. Also giving some support was a weak Canadian dollar and continued export interest from China.
However, new crop canola futures saw moderate losses on ideas that Canadian canola plantings were going to rise this spring from 2008. Weakness in the Chicago soy complex also weighed on the market. Western barley firmed on the lack of farmer selling. Concern about Canadian barley acres also gave some support.
Chicago corn and soybean futures were pressured down by the weakness in the outside markets and the gloomy economy. Grain and soybean prices held up well in the face of a steep drop in the Dow Jones stock market index. Soybeans saw losses in the old crop on technically based selling and beneficial rainfall for the Argentine soybean crop. Bigger losses appeared in the new crop on expectations for large U. S. soybean plantings. Demand remained strong for U. S. soybeans.
Corn futures posted declines as the continued global financial instability weighed on the market. Underpinning prices was unexpected rising export demand. Ethanol has returned to modest profitability and demand from that sector also supported the market.
U. S. wheat futures declined early in the period since my last column then bounced back in all three markets mainly on ideas that the losses left wheat oversold and due for a rally. Also giving support, particularly in Kansas City, was continued dryness for the U. S. winter wheat crop in the Great Plains. Demand does remain sluggish though and that limited the upside in the market.
FUNDS SHORT CANOLA
Interesting developments appeared in the canola market in early March and they generally suggested a poorer outlook for prices. Technical factors have turned negative enough to encourage commodity funds to short-sell canola. That means these savvy speculators are selling futures, expecting the market to fall. They will then be able to buy their futures back at a profit. As of Mar 6th they were short between 6,000 and 8,000 May contracts. They do have a fairly solid history of making accurate predictions about the canola market, although it is not perfect.
The other interesting thing in canola has been the big decline in new crop canola futures prices as the market now suggests that more than enough new crop acres have been committed to canola by farmers. New crop canola futures are below the old crop for the first time this year.
Seeming to confirm the market price movement is the latest Ag Canada acreage and supply demand reports. Ag Canada is forecasting 2009 canola acres at a record 17.235 mln, up from the Jan estimate of 16.803 mln and last year’s 16.159 mln. Judging by market price movement, the grain trade and Ag Canada now agree that canola seeding will see a big increase.
The Ag Canada supply-demand report for canola also contained some interesting numbers. While raising the acreage estimate for canola to a record high, it forecasts production at only 11.68 mln tonnes, down from 2008’s crop
of 12.643. It, like much of the trade, expects the average yield to drop back from 2008’s incredibly high record level to more normal levels.
For the 2008-09 crop year, Ag Canada raised its export forecast significantly as China continues to be a big buyer and that caused it to lower the ending stocks level to 2.6 mln tonnes, from the earlier forecast of 3.0 mln tonnes.
I feel this ending stocks level is still a bit high as the demand pace continues to be exceptional. I think we could ultimately see supplies as low as 2.3 mln tonnes for 2008-09 ending stocks.
Ag Canada is looking for strong demand in 2009-10 as it pegs canola exports at a record 6.9 mln tonnes, which is not unreasonable, and domestic use at 5.2 mln tonnes. With production at 11.68 mln tonnes, AgCanada is looking for ending stocks to drop to 2.3 mln tonnes in 2009-10 from 2.6 mln tonnes in the current crop year. I think this is a bit high and feel that ending stocks in 2009-10 are more likely to come in at 1.8-2.0 mln tonnes.
What this means for prices is that the big rally of the past year is behind us, but that prices should remain fairly firm in the $8-$9.50 per bushel for a farm gate price in 2009-10.
What will also weigh on the canola market will be the large U. S. soybean crop as recent forecasts suggest a record 2009 bean crop and higher U. S. 2009-10 ending stocks.
The South American soybean crop has now been rescued by recent moisture and the Argentine soy output is expected to be about 42.5 mln tonnes, down from early estimates of 50 mln tonnes. The Brazilian crop will be about 57 mln tonnes, down from early estimates of over 60 mln tonnes. This will give some support to spring oilseed values, but will not be as supportive as first hoped for.
WHEAT ACRES TO DROP
The other Ag Canada acreage forecasts were about as expected. Wheat acres in 2009 were pegged at 23.227 mln, down from 25.009 mln. This will bring down the total wheat supply. Durum acres were expected to drop to 4.94 mln from 6.03 mln in 2008. The high ending stocks and repeated warnings from the wheat board about durum oversupply succeeded in reducing the planted area. However, durum ending stocks will still be quite large in 2009-10.
Ag Canada forecast 2009 barley area at 9.35 mln acres, which is unchanged from 2008 and will keep barley supply in equilibrium. Prices should see some strength. I was surprised that Ag Canada lowered oats acres to only 4.24 mln from last year’s 4.34 mln. Given the large ending stocks in 2008-09 and some disappointing prices I actually expected to see a large decline in oats area. I would still expect to see this number come in lower.
For flax, Ag Canada estimated the 2009 acreage at 1.693 mln acres, up from 1.56 mln in 2008. This number also surprised me as the strong flax prices and the fairly good outlook caused me to expect to see flax are at the 2 mln acres or higher level.
– 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.