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Grain and oilseed prices at the ICE Canada futures market have dropped sharply since my last column, as the speculative commodity funds liquidated their sizable position in canola while buyers only made purchases as the market fell. Rain benefitting the crops in Western Canada added to the weakness in the market. Bearish technical signals prompted selling as well. Losses in the U.S. soy complex also provided a bearish push to canola values. However the canola decline was much smaller than the U.S. soy market as slow farmer selling, crop problems caused by weather, a weaker Canadian dollar and steady exporter demand gave some support. Western barley also tumbled in the wake of declines in the U.S. corn market and on sluggish demand.
Chicago corn and soybean futures dropped sharply as speculative commodity funds were also liquidating their positions in those markets. Soybeans were further under-mined by favourable growing con-d itions, losses in crude oil and lower international vegetable oil markets. Slowing soymeal demand also undermined the soybean market. Giving some support was solid export demand, a weak U.S. dollar and sluggish farmer selling. Corn futures declined on the favourable growing conditions for the U.S. corn crop, a big unexpected increase in corn acres in the USDA June 30 acreage report and bearish technical signals. Underpinning the market was strong export demand and slow farmer selling.
U.S. wheat futures posted only moderate losses in the wake of the declines in corn and soybeans. Favourable growing conditions for the spring wheat crops in North America add to the weakness. The advancing U.S. winter wheat harvest was mildly bearish, but the fact that the harvest is coming to an end was actually viewed positively as U.S. wheat markets generally put in their lows at this time. Also supporting wheat was a noticeable pickup in export demand for U.S. wheat. The speculative selling that sent other futures down was not evident in wheat.
SPECULATORS DUMP CANOLA
The volatility that we have warned about in these markets this summer arrived in a major way. It was entirely speculatively driven in both the Winnipeg market and the Chicago market This volatility is not over in these markets. Tightening U.S. soybean and canola supplies will keep volatility high this summer. An interesting development that has occurred in the canola market is the fact that the big liquidation selling in canola by speculators did not result in a corresponding drop in open interest (contracts) in the market.
The feeling in the trade is that as the speculators were dumping canola, exporters and crushers were loading up in order to assure supply and give them the ability to meet new crop orders.
This fact, along with tight U.S. soybean supplies and a late U.S. soybean crop, will maintain a volatile market in the oilseeds well into the fall. The Chinese soybean demand, which everyone has been saying will drop off, hasn’t yet. In fact they were strong buyers in old-crop U. S. soybeans and took more than 20 cargoes of new-crop soybeans in a week. The U.S. will need to see significant amounts of new-crop supplies move into the supply line in September, which may not be likely due to the lateness of the crop.
Judging by the phone calls I have been getting, many producers fear they have missed the highs in the market and hope for another chance to make sales above the $10/bu level. I think there is no doubt that they will be able to get that opportunity yet in the 2009-10 crop year.
A big concern for the market is the disastrous economic moves by the U.S. to stimulate their economy and take on massive debt. Bankruptcy would be the cure for a company, small country or individual, but for a major economy like the U.S. this is not really a choice to solve the problem of unsustainably high debt. Likely we will see the U.S. dollar plunge (the U.S. is notorious for devaluing its currency to pay its debts). This will contribute to market volatility. Ag commodities will hold values in these times.
U.S. STOCKS AS EXPECTED
USDA brought out its latest supply-demand report on July 10 and it was mildly bearish, but no big surprise to the market. The June 30 grain stocks and acreage report had already warned the trade that production was rising and ending stocks were increasing in corn, soybeans and wheat.
For wheat, USDA forecast the 2009 U. S. wheat crop at 2.112 bln bushels, up from the June forecast of 2.016 bln bushels, but well below last year’s 2.5 bln bushels. Ending stocks for 2009-10 were pegged at 706 mln bushels, a bit higher than trade guesses and last year’s 669 mln bushels.
Globally, USDA pegged 2009-10 ending wheat stocks at 181.3 mln tonnes, down from the June forecast, but up from last year’s 168.46 mln tonnes. However, it has not adjusted global production to reflect the crop problems fully and ending stocks will end up being close to last year, which means higher wheat prices are coming.
USDA pegged the 2009 corn crop at 12.29 bln bushels, up from last year’s 12.1 bln. The revision reflected the higher acres in the June 30 report. As a result, USDA raised their 2009-10 ending stocks estimate to 1.55 bln bushels from 1.09 bln. This does suggest lower prices for corn and barley but we are still likely to see $4/bu for both in 2009-10.
For U.S. soybeans, USDA forecast the 2009 crop at 3.26 bln bushels, up from last year’s 2.959 bln bushels. Ending stocks are expected at 250 mln bushels in 2009-10, up from 210 mln in the June forecast. While this is a more comfortable level, it is still close to the tight level of 200 mln bushels. We are still going to see $10/bu beans in the U.S. and $10-$11/ bu canola in Canada.
Currently the Canadian grain trade is forecasting the Canadian canola crop at 9-9.5 mln tonnes, even after the rain. This is down from last year’s 12.6 mln tonnes. However, demand will be greater than production which will help to boost prices with canola likely to hold a premium to soybeans as a result. Globally, European analysts have reduced EU rapeseed crop estimates by about 800,000 tonnes from last year while the Ukranian crop is a million tonnes smaller than last year. This should make a $1/bu premium for canola over soybeans highly likely.
– 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.