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Fresh Deliveries Pressure Canola

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Canola futures on the ICE Futures Canada trading platform lost some significant ground during the week ended Sept. 16, with the advancing harvest in Western Canada and reports of better-than-anticipated yields encouraging the downward price slide.

Producers were also delivering canola right off the combine and into the country elevator system, which contributed to some of the price weakness. Basis levels at Prairie elevators are quite wide as a result.

The larger-than-expected supply of soybeans in the U.S., as reported by the U.S. Department of Agriculture, also added to the bearish price stance in canola. The fact that end-users are not in any hurry to stock up on supplies and are only buying on a scale-down basis also put some downward pressure on canola values.

Chart-based commodity fund liquidation also surfaced in canola during the reporting period, which further amplified the price drop.

Western barley futures on the ICE Futures Canada platform experienced some volume during the week, with most of the activity tied to the realigning of positions by commercials ahead of the October future becoming a cash delivery month.

Cash bids for barley in Western Canada strengthened further as a large percentage of the crop was expected to grade at a higher level than in 2010.

Chicago Board of Trade (CBOT) soybean futures suffered a significant price drop during the week ended Sept. 16. A bearishly construed USDA report, combined with reports of better-than-anticipated yield potential as the U.S. harvest picks up steam, fuelled the downward price action. The upswing in the value of the U.S. dollar and the continued absence of fresh export demand contributed to the bearish price sentiment in soybeans. The availability of cheap South American soybean supplies on the world market also maintained downward pressure on soybean values. The triggering of sell-stops only served to amplify the price decline.

CBOT corn futures also suffered a pretty large price drop during the week. The absence of demand for U.S. corn supplies helped to stimulate the price weakness. Reports that yields were coming in at higher-than-anticipated levels, based on early harvest results, further augmented the declines. Commodity fund liquidation orders, sparked by bearish chart signals, also added to the price woes in corn.

Wheat futures at the CBOT, Kansas City and Minneapolis exchanges again experienced some major price losses during the reporting period. Availability of cheap Black Sea-region wheat weighed on values, as did weakness in the domestic U.S. cash market. The absence of a frost to hit the U.S. spring wheat belt contributed some weakness to wheat futures, as did reports of good progress in seeding the next U.S. winter wheat crop in the southern regions of the U.S. Spillover selling from the declines in corn also influenced the decline in wheat value.

Limits in the skies

Weather has certainly moved to the forefront of the news impacting price movement in commodity markets. The first significant frost of the year occurred across the Canadian Prairies on Sept. 13-15, with readings dropping to as low as -10 C in some of the key agricultural regions. The news failed to have much of an impact on canola; most participants appear to be of the belief that a good portion of that crop has been harvested or its maturity was far enough along that any damage would have been minimal. The turn to cooler weather was actually seen as beneficial for the harvest in Alberta and parts of Saskatchewan, where farmers were reluctant to cut canola due to the extreme heat that had been hitting fields during the day.

The frost potential had also influenced some buying in the U.S. markets, with U.S. environmental services also issuing frost warnings for a number of regions in the northern and Midwest growing states. However, while there was some frost in U.S. spring wheat areas, very little damage, if any, occurred in the corn and soybean areas.

Dryness issues, meanwhile, have surfaced in some of the southern U.S. winter wheat areas, where planting is being held off until some significant precipitation hits the ground.

The soybean-growing areas of Argentina and Brazil are heading into the planting season also on the dry side, but there remains plenty of time for those fields to also receive some beneficial moisture.

Weather issues are likely to remain at the forefront of items over which to keep a close watch, especially with a number of meteorologists predicting another La Nia event just around the corner.

The evidence from these individuals suggests the La Nia condition could return as early as this winter. Timing, intensity, influence of solar cycle and Pacific decadal oscillation are variables that the meteorologists will expand on as they further their analysis.

Considering that we just came out of a La Nia an event characterized by unusually cold ocean temperatures in the equatorial Pacific the global impacts are fresh in our minds.



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