ICE Futures Canada canola contracts dropped lower during the week ended August 20, as improving crop prospects and ideas that supplies will end up considerably better than early expectations weighed on values.
Positioning ahead of Statistics Canada’s first production estimates of the year released Aug. 20 was a feature in the trade in the lead-up to the report, with opinions varying widely as to just how large the crop would be. Now that the numbers are out, market participants will be busy second-guessing those estimates and making adjustments based on the latest weather and harvest news.
Often StatsCan comes out with a report and market participants immediately dismiss the government data and turn their attention to other more timely news. However, for once StatsCan didn’t disappoint, and the fact that canola production came in at the high end of trade guesses had many participants talking about production ending up even higher in future reports.
At roughly 10.8 million tonnes, the early projection for this year’s Canadian canola crop may still be a million tonnes smaller than in 2009. However, it wasn’t that long ago that the vast tracts of unseeded land and excessive moisture concerns across Western Canada had many in the industry predicting a canola production number with a nine in the front. While most of the crop still needs to be harvested, the pendulum of opinion has shifted back to the point where an 11 million-tonne-plus crop seems highly likely.
Until those supplies are actually in the bin, the nearby trade should find considerable direction from the weather outlooks, with any talk of frost likely lending some support.
From a chart standpoint, the highs appear to be in place in canola for now, especially as harvest pressure will soon be picking up steam. The $430 per tonne level appears to be a solid support level for the November contract, but $420 could be another possible downside target should that support fail to hold.
Barley futures saw some small amounts of choppy trade during the week, but most of the business continues to bypass the futures. Canadian barley production reported by StatsCan was also considerably above trade guesses, but still below the year-ago level.
Harvest pressure in U.S.
In the U.S. markets, wheat and soybeans both moved lower on the week, while corn managed to post some small gains. Crop scouting reports hinting at potential yield reductions accounted for some of that independent strength in corn, while soybeans were pressured by generally favourable crop outlooks and wheat saw a profit-taking setback off its recent highs.
Soybeans and corn will both be running into some harvest pressure in the next month, with December corn possibly set for a profit-taking move to the US$4.00 per bushel level, and November soybeans possibly headed for the US$9.80 per bushel level.
However, what happens in the wheat market, especially in relation to the Russian weather situation, could be a key driver in all of the grain and oilseed markets going forward.
Severe drought has decimated the Russian spring wheat crop, and the concern now is that if the drought persists, farmers in the country will also be unable to plant a winter wheat crop. Certainty on the Russian situation has been somewhat lacking. The country has halted grain exports through December and there was some talk during the week that they would be looking to import up to a million tonnes of grain. However, Russian officials said reports of any import demand were unfounded.
While the Russian situation should remain a major supportive factor in the wheat market, actual global wheat supplies are still rather quite large. The problem now is one of logistics and getting that grain to areas in short supply.
Canadian wheat production doesn’t make up a large percentage of the global crop, but the country is a major exporter. Just as in canola and barley, StatsCan pegged the country’s wheat production at a level well above trade estimates, but still below the year ago. Canadian wheat production could also be expected to end up higher than the 22.7 million tonnes now forecast by StatsCan, and any additional supplies could be seen as alleviating any perceived tightness caused by the Russian drought.
Phil Franz-Warkentin writes for Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting
For three-times-daily market reports from Resource News International, visit “ICE Futures Canada updates” at www.albertafarmexpress.ca.