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Global Economic Grief Puts ICE Canola Under Pressure

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Canola futures on the ICE Futures Canada trading platform suffered some significant downward price action during the week ended Nov. 25. Much of the price weakness continued to be influenced by the worsening global economic outlook as well as by expanding financial problems in the euro zone.

The modest to sharp declines in the CBOT (Chicago Board of Trade) soybean complex also contributed to the bearish price trend. The penetration of technical support helped to amplify the declines experienced by canola.

Restricting the price drop in canola were steady domestic crusher demand and the pricing of routine export business to Japan by the commercial sector. The downswing in the value of the Canadian dollar and the absence of significant farmer deliveries into the cash pipeline also slowed the price declines.

Western barley futures on the ICE platform continued to remain dormant, although there were some contracts traded. Much of the action in barley was the unloading of positions in the December future before the future becomes a cash delivery month. Cash bids for feed barley continued to hold steady at fairly firm price levels.

CBOT soybean futures posted some major price declines during the week ended Nov. 25. Much of the downswing in values was associated with the bearish macroeconomic picture and the bailing out of positions by investors. The resulting climb in the value of the U.S. dollar added to the bearish sentiment.

Additional weakness in U.S. soybeans was linked to news that Brazil s soybean crop was developing under favour-able conditions and will be record size. The early planting of the crop was also expected to result in an early harvest, making it available to be exported sooner than normal. The cheap South American crop was seen swinging business away from the U.S.

Chart-related liquidation orders further weighed on soybean values.

CBOT corn futures also lost ground during the latest reporting period. The poor export picture for U.S. corn, along with the uncertainty surrounding the global economic picture, stimulated the declines. Bearish chart signals helped to exaggerate the price drop.

The losses in corn were slowed somewhat by sentiment that the market was oversold, and by the continued reluctance of U.S. farmers to deliver into the cash market.

Plenty of wheat

Wheat futures at the CBOT, Kansas City and Minneapolis exchanges experienced some modest to large losses during the reporting period. Ample world wheat supplies, the upswing in the value of the U.S. dollar, and the worsening financial situation in the euro-zone region all contributed to the downward price slide.

The availability of cheap wheat from the Black Sea region also encouraged some of the price weakness.

The grain and oilseed markets appear unwilling to move its focus away from the dismal macroeconomic picture and on to the fundamental picture.

Canola supplies are tight, demand is good and the harvest is done, which

suggests values should be moving higher. However, every time some bullish steam is built up, more bad news on the economic front is released.

The bad news in the latest week included China s economy starting to experience slower growth, the inability of a U.S. congressional super committee to come up with some sort of plan to halt the worsening debt crisis in the U.S., and news that a number of European government bond issues may default.

This divesting of risky assets by global investors, unfortunately, is not going to go away anytime soon and will continue to have some serious bearish impact on values in the North American grain and oilseed sector.

Some market participants, based on the poor economic picture, were now forecasting that CBOT soybean futures, basis the March future, will be heading back to the $10.50-a-bushel range. The decline was expected to be before the end of December if not a bit sooner.

Some U.S. analysts were calling for CBOT soybean values to drop back into the $8.50 to $9-per-bushel range, especially if support in the January future is penetrated at $10.50.

CBOT corn futures will also continue to reel from the bearish world economy, with some participants forecasting prices to drop into the $5.50 to $5.25-per-bushel level also before the end of December.

There was talk of progress by leaders in France and Germany to shore up eurozone banks and attack the debt crisis on the weekend (Nov. 26-27). Those talks sparked a sharp rally in European stock markets and pushed Asian markets up. As a result, commodities, including grain and oilseeds, have experienced a bit of a rally based on these headlines.

The past couple of weeks have done an excellent job of forcing old longs to the sidelines and trashing old bullish sentiment in agricultural sector futures.

Fallout from the MF Global bankruptcy filing in the U.S. also continues. The news definitely resulted in a number of speculators being forced out of the market and has in turn resulted in some thinner volumes in a number of commodities. MF Global Canada participants also had to liquidate contracts with the switch over to another firm which was allowed to clear and that s been seen as a lengthy process by individuals who had to make the switch.

The loss of participants in the marketplace due to this situation was not seen as a good thing for the markets.




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