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Grain Markets Not Catching Flu

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For Don Bousquet’s three times daily market reports, visit www.albertafarmexpress.ca

Grain and oilseed prices at the ICE Canada futures market have rallied since my last column with gains in U. S. markets giving a boost to Winnipeg prices. The gains however were offset by a rally in the Canadian dollar to four-month highs against the U. S. greenback.

Canola saw modest gains, lifted by speculative buying. Commodity funds were reacting to a technical signal that in the past has proven highly accurate at suggesting the market would see a rally. Continued strong crush margins also gave support. Farm gate prices rallied to and above $10 bu. in Saskatchewan and Alberta and that attracted in heavier farmer selling. Also restraining the gains was lack-lustre fresh bookings of canola which slowed exporter pricing. China seems to have backed away from the market for now, with many traders citing the strong Canadian dollar as one of the reasons.

Western barley was firm in very light trade. There was little interest in the market and the market rallied on the general stronger tone in grain markets and the slow pace to farmer selling.

U. S. RALLIES

Chicago corn and soybean futures posted a solid rally. Soybeans were lifted by the tightness in the old crop. The latest estimates for the Argentine soybean crop were lowered and that gave support, as did strong export demand with China continuing to be a strong buyer. The old crop rally pulled up the new crop, but new crop gains were muted by the delays in planting the U. S. corn crop which many feel will result in higher soybean acres. Corn futures advanced sharply as rain delayed the corn planting and export demand remained brisk. The move up came in both the old and new crops.

U. S. wheat futures also rallied sharply with the market supported by weather problems. The frost that hit the winter wheat crop in early March on the southern Plains caused some initial buying, with heavier-than-needed moisture by the end of the month helping to boost values. In addition the cool wet conditions on the northern Plains were hampering planting the spring wheat crop. The resulting gains turned chart patterns friendly and that triggered huge commodity fund buying. They were buying back their futures contracts as they had bet on wheat prices falling and the rally was costing them money.

The grain and oilseed markets encountered a brief drop on the H1N1 flu threat as traders feared that lower pork consumption and a cull of hogs would result in lower demand for feed grains. However, the threat was very short lived and within days of its appearance as a market force it was fading.

CANADIAN ESTIMATES

Agriculture Canada brought out its revised 2009-10 supply-demand reports at the end of April following the April 24th Statistics Canada planting intentions report. The numbers suggest that prices should be reasonably strong this year.

For canola , Ag Canada pegged the 2009 crop at 10.15 mln tonnes and usage at 12.35 mln tonnes. The result was 2009-10 ending stocks dropping to a very tight 650,000 tonnes from 2.6 mln in 2008-9.

This seems reasonable and suggests that old-crop canola values do not have as much downside in them as I first thought. However, if weather is supportive for the crops in North America, I do still think we will see canola cash bids hit the $8.50-$9 per bushel level before the rally begins, unless U. S. soy markets see an unusual spring rally.

However, longer term I do expect canola to top $10/bu. and there is a strong chance it will reach $11/bu., depending on two main factors. The strength of the Canadian dollar could be a depressing influence. It has hit four-month highs and looks like it might want to go even higher.

The other factor that has to be watched is international vegetable oil and oilseed output. South American soybean production will likely be higher in 2009-10 as the Argentine crop returns to more-normal production. This will offset the fact that the Brazilian crop looks like it will be smaller in 2010 as farmers are having trouble getting credit for inputs.

However, with global vegetable oil and soybean supplies as tight as they are the downside in the market is limited and the canola outlook is turning quite strong.

BARLEY COULD RECOVER

For barley, Ag Canada expects the crop to be 10.8 mln tonnes, usage to equal 10.9 mln tonnes and ending stocks to be 2.0 mln tonnes. This is reasonable and suggests that barley markets will not be depressed in 2009-10. With the U. S. corn market looking bullish, the barley outlook is quite strong. In fact I am looking for barley to return to the $3-$4 bu. level next fall and early winter, up from current values that are mostly around the $2.50/bu. level. Barley at $2.50/bu. is obviously undervalued when corn is US$4/bu.

Ag Canada pegged Canadian wheat production at 25.9 mln tonnes with usage at 26.2 mln tonnes. The result will be ending stocks falling to 6.4 mln tonnes. However a big part of the ending stocks will be durum at 2.1 mln tonnes.

The International Grains Council in its monthly sup-p ly-demand report forecast that global 2009-10 wheat ending stocks would be 171 mln tonnes, up from this year’s 162 mln tonnes. I feel they are optimistic about production at 651 mln tonnes. The strength in global wheat prices also suggests that the IGC is a bit high.

However, even if the IGC is accurate and overall wheat stocks increase, the supply of high-quality wheat will be very tight this year and Canadian wheat farmers should have a good year financially, although nothing like the $12/bu. we have seen recently.

The Ag Canada numbers had little news for oats which is trading below $2.00/bu. in most of Western Canada. They pegged production at 3.4 mln tonnes and consumption at 3.7 mln tonnes. This might prove a bit optimistic. If accurate, 2009-10 ending stocks would drop to 900,000 tonnes which is still on the burdensome side. The friendliest news for oats is the fact that the corn outlook is so strong. This would normally pull oats up, but it certainly hasn’t in 2008-09. I could see oats back to the $2.50/bu. area this fall and back to $3/bu. only if there is a major problem with U. S. corn or Canadian oats production.

– Don Bousquet is a well-known

market analyst and president of Resource News International (RNI),

a Winnipeg company specializing in grain and commodity market reporting.

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