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Canola contracts at ICE Futures Canada in Winnipeg saw some heavy-volume activity during the week ended April 16, as commercial and commodity fund traders rolled their positions out of the nearby May contract. However, those large volumes did little to rouse values out of their well-established ranges, and prices showed no real change in direction on the week. While the market remained rangebound overall, the bias was to the upside, with the largest gains seen in the new-crop months.
Participants on both sides of the market appear reluctant to take prices too far one way or the other outside of their ranges. While there is certainly enough bearish news to make a case for a move lower in canola, especially with the general forecasts calling for a sizable increase in acres this spring, it seems a greater case could be made right now for an upside breakout.
From a simple seasonal perspective, spring is a time of year when producers are busy with things other than delivering grain, and any slowdown in that country movement should be at least somewhat supportive for canola. Basis opportunities in particular could start coming forward from any line companies in need of canola in short order.
In addition, the Canadian dollar declined by nearly a cent relative to its U.S. counterpart by April 16, despite trading above parity at one point during the week. A weaker Canadian currency usually translates into improved export demand and better crush margins for the domestic processors, both of which would bode well for rising prices.
Another potentially supportive price influence is the fact that the commodity funds are holding a large short position in canola. As a result, any modest strength in canola could easily turn into a short-covering rally if values manage to pass the technical levels those fund traders are looking out for.
The weather is still a wild card at this time of year, but there is still more than enough uncertainty with regards to the upcoming growing season to keep a premium in the market.
Even the recent volcanic eruption in Iceland that grounded aircraft in Europe during the week was getting some play as a potentially supportive price influence, given the potential to disrupt weather patterns. However, actual meteorologists were generally of the opinion that the Iceland volcanic eruption was not large enough to significantly alter the global weather situation, aside from causing some temporary haze and cooling in Europe. The Canola Council of Canada was in China that week, on a trade mission with Agriculture Minister Gerry Ritz. There were no big developments with regards to the blackleg issue, but the facts that talks are ongoing and Chinese end-users seem to want our canola should bode well in the long run. China is a big country with a lot of mouths to feed, and as long as that remains the case, they’ll be in the market for our agricultural products one way or the other. However, China can also be a price-sensitive market.
Barley futures were untraded once again, although there were enough bids under the market to cause ICE Futures Canada to lower the price of the nearby May contract. On the cash side, barley has seen some firmness, although any upside may be limited by the fact that there are more than enough competing feed ingredients available to keep values constrained.
Looking at the U.S. markets, the weekly pattern was much more pronounced, with soybeans, corn and wheat all breaking out of their nearby ranges to move decidedly higher.
The potential short covering that could take canola higher actually materialized in the Chicago markets, with the speculative buying back of previously sold positions accounting for most of the strength in all three commodities.
A tight nearby supply situation was also supportive for soybeans. While South America is sitting on a record crop and U.S. farmers are expected to plant more soybeans, the demand is expected to be there for those large supplies, keeping the overall supply/demand balance relatively tight.
The S&Ds on corn are not so tight, but the fact remains that U.S. farmers wouldn’t be planting so much corn if they weren’t making money on it.
Wheat, however, remains the weakest looking of the commodity markets, despite all three U.S. wheat markets posting solid gains on the week. In the absence of speculative short covering, the global fundamentals are still relatively bearish for wheat.
In Western Canada, most seeding decisions should be fairly well set right now, with unconfirmed reports coming out during the week that some planting was already taking place in a few of the more southern reaches of the Prairies.
Looking at Western Canada as a whole, the safe bet is on an increase in canola and lentil acres, and a decrease in barley and durum. The expectations for oats, spring wheat and flax are a little more mixed, with lower prices being counteracted by rotational needs and lower input requirements.
Phil Franz-Warkentin writes for Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting