ICE-y future Minimal uptake in new milling wheat, durum and barley contracts puts their life in doubt
Steady demand provided canola futures on the ICE Canada platform with plenty of support during the week ended Oct. 26.
Much of the demand was associated with the emergence of fresh Chinese buying interest, with at least three cargoes of Canadian canola purchased by the country.
There were hints that additional sales were made, but export outlets were unwilling to confirm the extra business. Much of the export interest was said to be tied to the downswing in the value of the Canadian dollar, which was pushing back towards parity with the U.S. currency. The weaker loonie makes it more attractive for importers to purchase canola. Domestic processors also continued to be fairly steady buyers of canola, even though crush margins deteriorated during the reporting period. A lot of the demand for canola from the domestic and export sectors has been front-loaded, meaning sales on the books have been aggressive likely through to the new year at least.
As a result, there has been a bit of an upward push in canola futures as the commercials try to cover those sales. The problem of course with that is that canola production in Canada was not able to meet those expectations, falling well short in the latest Statistics Canada production survey. This in turn has sparked some creative efforts by elevators to attract deliveries.
Farmers have been sellers of the tight canola supplies, but on a scale-up basis and only when the cash bids become attractive. However, market participants are warning that while canola has been able to regain a premium to soybeans, the upside may be limited.
They point out that while there is a seasonal rally in U.S. soybeans and subsequently canola during late October through to the U.S. Thanksgiving holiday in late November, the limiting factor is the record soybean acreage that is going in the ground in Brazil and Argentina.
Granted, there is much debate about the condition of the soils those soybeans are being planted into, but the key factor to remember is that those crops will go a long way to replenishing the global oilseed supplies.
The fact that those soybeans are normally priced well below canola and the U.S. soybean market, means that buyers will be attracted to those supplies.
There was finally some action seen in the milling wheat contract on the ICE Canada platform during the week. A whole two contracts were traded between commercials which brought open interest in the commodity to 74 contracts (December and March combined). Durum and barley contracts in Winnipeg again failed to draw any attention.
With the absence of activity in the milling wheat, durum and barley contracts, the longevity of those futures is in doubt. Market participants are quick to point out that the commercial sector has failed to support those futures. They also believe the contract size of 100 tonnes for wheat and durum works against the smaller speculators and encourages the use of the futures on the Minneapolis Grain Exchange.
The removal of the Canadian Wheat Board’s monopoly on the sale of western Canadian wheat, durum and barley has also failed to attract participants to the commodities offered on ICE Canada. The liquidity issues in dealing with ICE Canada contracts, with the exception of canola, also favour the MGEX.
Record S.A. soy?
Soybean futures at the CBOT also posted advances despite late-week profit-taking. Strength in soybeans continued to be linked to strong demand from the domestic and export sectors as well as to the tight supply outlook.
The upside in soybeans was again tempered by the threat of a record-size soybean harvest in Brazil and Argentina. There are a number of analysts who are more than willing to point out that they have never seen better conditions for the planting of the crops in those countries.
However on the flip side of that coin, there are others who are indicating that conditions are less than prime in a number of key growing areas and that the crop is still far from being harvested.
Corn futures on the CBOT eased during the reporting period with the total absence of demand for the commodity from the domestic or export sectors stimulating the declines.
The drop in demand has been pretty wide and has included the U.S. livestock sector, the ethanol groups, importers, exporters and a whole list of others. They continue to look at the price of corn in the U.S. and then look at the cheaper alternatives.
The nearby wheat futures on the CBOT, MGEX and KCBT experienced some minor weakness while the more deferred months were able to post advances. The sell-off in CBOT corn and the absence of demand allowed the nearby months to weaken.
Much of the support in the deferred values, meanwhile, was linked to news that Ukraine will halt sales of its cheap wheat beginning Nov. 15.
The decision by that government to halt wheat exports was tied to the fact, the well has finally run dry. Of course this sparked ideas that importers will look to the U.S. to cover those requirements. The sentiment among market participants is that if the wheat supply in Ukraine is running dry, that all the wheat stocks in the Black Sea region may be short in supply. This in turn has helped to spark demand for the more deferred wheat contracts.