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Markets Toss And Turn On Economic Uncertainty

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ICE Futures Canada canola contracts bounced around within a relatively narrow range during the week ended Oct. 28, posting declines in most months, aside from the nearby November. The gains in the front month were tied to position-evening ahead of deliveries against the contract, as traders exited their positions in November and the spread narrowed in.

The move back above parity in the Canadian dollar accounted for some of the relative weakness in canola compared to soybeans, which moved up on the week.

January is now the most active contract, and it finds itself stuck in a range between $525 and $550 per tonne. Seasonally, prices could be due for some strength heading into the new year, as the harvest pressure is now a distant memory and export demand typically picks up around this time of year.

However, the big wrench in the system these days is global economic uncertainty. Outside financial markets have bounced around a great deal in recent weeks on rumours out of Europe one day to the next, and canola is a small ship in that big sea. One day investors are all optimistic that politicians will come up with a plan to save the day driving prices across the board higher. However, the next day, the cup is once again half empty, and the talk in the trade inevitably turns to how any plans in place won t be enough to protect the economy.

That volatility shows no signs of letting up and will continue to be the wild card in the canola trade. However, many analysts don t see much downside potential in canola either, with solid exporter and domestic crusher demand coming forward on any moves lower. The best basis levels are currently available in Manitoba, as tight supplies in the province have caused bids to surpass the futures in some cases.

Western barley futures were higher during the week, with ICE arbitrarily bumping prices up despite there not being any actual trade.

New relationships

The current lack of liquidity in the feed barley contract doesn t bode well for the implementation of the new wheat, durum and barley futures recently proposed by ICE Futures Canada. However, there is definitely an argument to be made that the looming end of the Canadian Wheat Board s single desk will bring interest back to the futures market.

The current feed barley futures don t really need to be traded, according to some industry participants, as the domestic feedlots in the market for barley only make purchases on a month-to-month basis and don t need to price that far out. However, under an open market, larger exporters and malt companies looking to buy grain outside of the CWB will need a hedging mechanism and the opportunity to forward-contract. It remains to be seen if that theory will hold true, but many traders are at least cautiously optimistic the Winnipeg market will see some more activity.

From a logistics standpoint, there is some uncertainty that the change to a new system will cause some disruptions, especially with a number of legal challenges currently up in the air. With no viable forward-pricing opportunities currently available for barley, both commercial buyers and farmers are waiting on the final implementation of the federal government s Bill C-18 before looking ahead to new-crop ideas.

However, industry participants say the grain handlers are in a reasonably good position to move forward when the time comes, as they are already moving the grain on the CWB s behalf.

For an outsider looking in, such as an international buyer, the changes to Canada s grain marketing structure will lead to some new relationships, but won t lead to substantial outward changes on the supply/demand front from Canada.

In U.S. futures markets, soybeans, corn and wheat all moved higher during the week, after chopping around within narrow ranges of their own. Outside economic influences were also a major factor in U.S. grains and oilseeds, with a softer U.S. currency providing some support.

Talk of increased export demand from China could underpin both soybeans and corn going forward, but wheat continues to be the slow one on the export front as the U.S. continues to miss out on sales opportunities due to increased competition from the Black Sea region.

The U.S. corn and soybean harvests are in their final stages, and attention in the market is turning to export expectations and crop developments in South America.



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About the author


Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.



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