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U.S. And Canadian Reports Confirm Bigger-Than-Expected Crop

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(OCT. 6)

Grain and oilseed prices at the ICE Canada futures market are mixed since my last column. Canola is down moderately in the wake of losses in the Chicago soy complex, the advancing harvest, ideas of a large canola crop and slower demand from the crushing sector. Speculators were also selling as technical signals turned bearish. The market hit its lowest level in a year. Farmer selling was steady, mainly against forward and basis contracts. With cash bids below $7.50/bu., non-contracted farmer selling slowed.

Western barley actually edged a bit higher as farmer selling was very slow. Cash dealers feel that farmers are going to lock away their barley and wait for the traditional winter rally in prices.

Chicago futures were a bit higher in corn and sharply lower in soybeans. Soybeans were undermined by the lack of a frost threat against the crop and ideas the crop will be large. However demand is still moving at an aggressive pace and that slowed the drop in prices. News that Brazil has run out of soybeans for its domestic crushing industry also gave support on ideas they will be buying U.S. soybeans. Corn futures were higher last week as the crop was still vulnerable to frost with a killing frost forecast for the Thanksgiving weekend. Continued strong demand also gave support with ideas that the corn crop will be record large hanging over values.

U.S. wheat futures declined with the large global and U.S. wheat supply and sluggish demand for U.S. wheat weighing on prices. It should be noted though that in the face of all the bearish news the wheat market is still $1/bu. above the 30-year average price.


There were two major reports that influenced the markets. In Canada it was the Statistics Canada crop production report on Oct. 2. while in the U.S. it was the quarterly grain stocks report and small grain production report on Sept. 30.

The Canadian report came in as expected, but did contain some interesting information. As expected, the Statistics Canada report showed a larger crop than in the Sept. report. Traders feel that the crops have only gotten bigger since the report was taken and that the Dec. StatsCan report will give a more accurate assessment of crop size.

The number that everyone was watching was canola, which came in at 10.269 mln tonnes, up from the last report’s 9.5 mln tonnes. Traders are still convinced that the ultimate number will be 11 mln tonnes while Joanne Bluth of the Canola Council has stated that it will be more than 11 mln.

While this is much larger than originally expected, it is not a bearish number as demand will be able to absorb it. The export pace and the domestic crush pace both indicate that demand will be high enough to absorb the bigger supply and draw down canola ending stocks.

The current slower pace to the crush reflects problems that crushers are having moving canola meal to the U.S. Salmonella in the canola meal has halted the exports from some plants and slowed the crush. Analysts feel this will be resolved soon.

The overriding influence in canola will be from U.S. soybeans. Right now that crop is expected to have record-large production, with closely watched Informa Economics estimating the crop at 3.3 bln bushels. However, the pace of export and crush demand in the U.S. suggests that the soybean market will see a nice rally once harvest pressure declines and that will help canola rebound.


For barley, oats, and peas, the StatsCan report came in below expectation at 9.164 mln tonnes for barley, 2.899 mln tonnes for oats and 3.161 mln tonnes for peas. Traders still feel these numbers will be revised higher in the Dec. report, but are uncertain about how large these crops will ultimately be.

The other number that caught the trade by surprise was durum which came in at 5.066 mln tonnes, up .55 mln tonnes from the last StatsCan report. The trade is looking for the final crop size to approach the 5.5-mln tonne level and that is way too much durum, given that the world has boosted its production as well.

Farmers with durum are likely to find that they will be storing a lot of it well into the 2010-11 crop year.

USDA issued several reports on Sept. 30 that, while not market moving in a big way, made some interesting observations on the crops.

For soybeans, USDA pegged the 2008-09 ending stocks at 138 mln bushels which was larger than traders expected, but was still well below last year’s 205 mln bushels. This was no great surprise to the trade and certainly suggests that soybean supplies in the U.S. are very tight and that a large crop will be utilized by the market.

This is a reasonably supportive backdrop to the canola market.

For corn, USDA pegged the 2008-09 ending stocks at 1.674 bln bushels, actually below trade expectations and very close to last year’s 1.624 bln bushels. The expectation is that we will see a 2009 corn crop of 13.3 bln bushels, according to Informa Economics. However analysts have noted that demand is running at high levels and the market may use all these supplies.

There is increasing talk of China coming back into the U.S. market for corn this year because of drought problems. This could send corn back to the $4/bu level very quickly. At worst, corn prices look like they will rally back to the $3.75/bu. level this winter.

For wheat, USDA pegged the Sept. 1 supply at 2.215 bln bushels, which was higher than traders expected and is well ahead of Sept. 2008’s 1.858 bln bushels. USDA also forecast total 2009 U.S. wheat production at 2.20 bln bushels with a smaller U.S. winter wheat crop offset by larger production of U.S. spring wheat and durum.

This just confirms the weakness we have seen in the wheat markets with new contract lows. We need to see prices drop low enough to attract in export demand. Once that happens, the declining global wheat acreage will help to take prices back up, though not likely to the highs we have seen.

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