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Canola Futures Fend Off Weather-Related Bearishness

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Canola futures on the ICE Futures Canada trading platform managed to recapture some upward price action during the week ended Aug. 19. Support stemmed from the rally in the Chicago Board of Trade (CBOT) soybean complex, with a drop-off in farmer sales of canola into the western Canadian cash market also providing a firm floor for prices.

The upside in canola was hard earned in view of continued worries over global macroeconomics and the fact that most participants believe weather conditions have been extremely beneficial for the development of the canola crop across most areas of the Prairies.

The lack of aggressive demand from end-users, as they await new-crop supplies, also was an undermining price influence. The lack of fresh export demand for Canadian canola, despite a pull-back in the value of the Canadian dollar, also tempered the upside price potential.

Western barley futures contracts finally saw some price action during the week, with the October contract losing some value when commercials liquidated some of their positions they had open. Meanwhile, cash bids for feed barley in Alberta and Saskatchewan held steady over the reporting period, while in Manitoba there was a slight easing in value.

CBOT soybean futures posted some significant advances during the week ended Aug. 19 with much of the upward price action associated with production concerns. Support stemmed from ideas that August, a critical development month for the U.S. soybean crop, has had some extreme heat. This in turn has sparked concern that the yield potential of the crop has been severely reduced.

The upside in soybeans was restricted by the ongoing worries over the global economy, as speculators and commodity funds did not hesitate to bail out of their agricultural commodity positions when the North American equity sector showed signs of faltering.

CBOT corn futures were up on the week, but the advances were only modest in comparison to the previous reporting period. Ongoing sentiment that U.S. corn output will be much lower than anticipated continued to fuel steady demand for the commodity at the CBOT.

The upswing in corn values was restricted by the worries over the global economy and by sentiment that corn futures had climbed too high, too fast. The upward trend in the value of the U.S. dollar also continued to scare off fresh export demand for U.S. corn and further tempered the upward price momentum.

Wheat futures at the Chicago, Kansas City and Minneapolis exchanges were up significantly during the reporting period. Much of the price strength seen in both CBOT and KCBT wheat came from the huge jump in Minneapolis wheat futures. Concerns that the area seeded to the spring wheat crop in the northern-tier U.S. states was actually much lower than reported helped to spur some of the buying. Adding to the strength were concerns that yields have been reduced by poor growing weather, and that the quality of the U.S. spring wheat crop has also taken a turn to the downside. Reports of disease issues only served to amplify the strength in MGEX wheat values.

Country-of-origin unlabelling

There were more than just a few eyebrows raised by news the MGEX will drop the U.S.-origin stipulation for wheat delivered against its hard red spring wheat futures contract starting with the May 2013 contract.

The speculation in the market among participants is that by doing so, the MGEX will attract further usage of its contracts from the Canadian side of the border.

ICE Futures Canada is also planning on launching a wheat futures contract when the Canadian government introduces legislation that will end the Canadian Wheat Board’s single-desk power over the marketing of Prairie wheat, durum and barley with the start of the 2012-13 crop year.

ICE officials acknowledge that there will be some loss of business to the MGEX, but overall there will be enough demand of the marketing tool to make the futures contract viable.

Statistics Canada will release its first production survey of the season on Aug. 24, with most industry participants anticipating some large crop forecasts.

There has been, and continues to be, a lot of debate about the impact on production from the late start to seeding and the extremely wet and cool conditions at the start of the growing season. The general rule of thumb at present is that the hot conditions during June, July and August allowed development of the various crops to catch up to more normal growth patterns.

There have been producers who have tried to convince the industry that yields have suffered greatly. However, there are others who claim they have never seen such strong yield potential as they have this year.

The price outlook for flaxseed is not as rosy as it once was. There has been a slow decline in cash bids for flaxseed in Western Canada as the ending stocks picture for the crop continues to climb. Prices for the commodity in the cash market were seen declining further, given that European demand for the crop in Canada is way down and could decline further.

There is much speculation in the trade that European outlets will be sourcing a large portion of their annual import needs from the former Soviet Union instead of Canada.



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