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Canola, Barley Seen Gaining On Tight Supplies

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Canola futures on the ICE Futures Canada trading platform suffered a minor price setback during the week ended June 10. The taking of profits by speculative accounts after new highs were established in the July and November contracts provided some of the downward price momentum.

Adding to the bearish price atmosphere in canola were the declines in Chicago Board of Trade (CBOT) soybean and soyoil futures. Increased competition on world oilseed markets from a larger-than-anticipated soybean crop in Brazil and Argentina added to the weakness.

Tempering the downside in canola were continued concerns about what the weather has done to the production outlook for the crop. Some of the worries lie around just how many acres won’t be seeded this spring in eastern Saskatchewan and western Manitoba. The need to reseed canola in northern Saskatchewan and northern Alberta because of frost also contributed to the worries. The late seeding of canola in the eastern regions of the Prairies also has left the crop vulnerable to an early frost.

A lot of industry participants are now waiting for the release of the June 23 acreage survey from Statistics Canada to confirm the lost canola seedings.

Western barley futures on the ICE platform actually saw some volume during the week, with commercials generally bailing out of July ahead of it becoming a cash delivery month. Cash bids for barley in Western Canada, meanwhile, continued to see some strength.

CBOT soybean values traded down during the week ended June 10. The U.S. Department of Agriculture’s supply/ demand balance sheets, which found extra supplies of soybeans, encouraged some of the downward price action. Sentiment that soybean area will be larger than anticipated also sparked some of the price weakness. Some of the declines experienced by the commodity also reflected ideas that prices were overbought and in need of a downward correction.

Corn futures at the CBOT managed to post advances during the reporting period with the USDA report, which confirmed that supplies of both old-and new-crop corn were a lot tighter than expected, prompting much of the upward price movement.

The slow pace of farmer deliveries of U.S. corn into the cash market helped to influence some of the price gains.

Wheat futures at the CBOT, Kansas City and Minneapolis exchanges all suffered some significant price setbacks during the week ended June 10. Improved weather in some of the world’s wheat-growing regions stimulated some of the weakness. The start of the U.S. winter wheat harvest and reports of better-than-anticipated yield potential contributed to the price declines.

Federal forecast

The market analysis branch of Agriculture and Agri-Food Canada released its latest supply/demand outlook with the projections for ending stocks for certain crops definitely worthy of note.

The 2011-12 carry-out projection of canola in Canada of 650,000 tonnes – if achieved – can be classified as extremely tight, considering AAFC had originally anticipated ending stocks to come in closer to 850,000 tonnes. The 2010-11 forecast of 700,000 tonnes can also be described as tighter than the industry desires.

The low 2011-12 stocks forecast was linked to the tight 2010-11 carry-in supply of canola and the fact that demand from China, the U.S., Mexico and Pakistan will remain extremely strong.

The Canadian barley supply situation is also drawing a lot of attention. The agency predicted that barley stocks at the end of the 2011-12 crop year will be a tight 800,000 tonnes – possibly a record low. Carry-over of barley in 2010-11 was seen coming in at 1.25 million tonnes, which can also be classified as being on the tight side.

A pickup in export demand and domestic usage of the crop as feed, along with the tight carry-in supply, was associated with the extremely small carry-out forecast for next year.

With the tight supply situation for both canola and barley, prices should respond to the upside at an appropriate time.

I’ve been told that producers with barley in Manitoba have already been able to obtain as much as $5 a bushel from the commercial elevator system, which is pretty much a record in itself for the province.

Some market participants felt the tight AAFC ending stocks forecast for barley just can’t happen, with demand either from the export or the domestic sectors having to be rationed in order to avoid this situation. The only way to ration demand is to raise prices.

Canola bids should also continue to move to higher territory, but the strength will be very dependent on just how good the crop that was seeded in Western Canada really is.

Sources continue to comment on how good everything is for the development of the recently seeded canola fields in western Saskatchewan and over most of Alberta. However, there is also plenty of time for additional weather scares to develop.



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