Prairie precipitation spurs new-crop canola selling

Bearish U.S. corn futures under pressure on expectations
of large acreage this spring

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The divergence between old- and new-crop canola contracts traded on the ICE Futures Canada platform experienced a bit of a widening during the week ended April 13, as concerns about the record usage pace buoyed the nearby May and July futures.

The deferred futures were undermined by an improvement in the soil moisture situation on the Prairies ahead of spring seeding operations and the record amount of canola that will be planted.

There was sentiment in the market that old-crop canola futures need to climb further in order for rationing of demand to begin being taken seriously by the domestic and export industries. Talk of Chinese demand for Canadian canola also surfaced during the reporting period, which in turn provided some buoyancy for values.

The much-needed arrival of precipitation in the dry growing regions of Alberta and Saskatchewan helped to influence some of the selling that emerged in the new-crop months. The precipitation, which arrived as both snow and rain, was considered timely and will provide for a good start for producers anxiously awaiting to get out on the fields to begin planting.

As for how much canola will actually be seeded this spring, estimates continue to hover around the 21-million- to 23-million-acre range. Statistics Canada will release its first plantings survey on April 24. However, market participants already anticipate the report will come up short in its projection, with the numbers not taking into account any switch into the crop after the survey was conducted.

There was some arbitrary price movement seen in milling wheat, durum and barley contracts on the ICE Futures Canada platform, but very little in the way of actual volume.

Soy futures mixed

Chicago Board of Trade soybean futures were mixed during the period ended April 13. Confirmation of tighter-than-anticipated old-crop soybean supplies in the U.S., and on the global market, in the U.S. Department of Agriculture’s April 10 supply/demand balance sheets helped to firm up the nearby May and July contracts.

The USDA pegged U.S. soybean ending stocks at 250 million bushels, which was down 25 million from the estimate made in March, but about 10 million higher than what the trade had been anticipating. Demand for U.S. soybeans, however, was increased in the report. World soybean ending stocks for 2011-12 came in at 55.52 million tonnes, down from the 57.3 million forecast in March and the year-ago level of 69.12 million. The USDA also lowered its Brazilian soybean output to 66 million tonnes from 68.5 million made a month ago. Argentine soybean production was estimated at 45 million tonnes, down from 46.5 million. The weakness in new-crop soybeans reflected the favourable weather for seeding operations in the U.S. heading into the spring — as well as the sentiment that values have moved too high, too fast, and were due for a downward correction.

Concerns about the state of China’s economy also tempered some of the price strength seen in soybeans.

Bearish on corn

Corn futures on the CBOT suffered declines, with old-crop months leading the downward price slide. The USDA report, which failed to reduce the old-crop corn supply in the U.S. was the main bearish influence. The USDA estimated 2011-12 U.S. corn ending stocks at 801 million bushels, unchanged from the month-ago projection. The forecast was also about 70 million to 80 million bushels above what pre-report ideas had been anticipating. World corn ending stocks in 2011-12 were pegged by USDA at 122.71 million tonnes, compared with 124.53 million in March.

The anticipation of U.S. farmers planting an extremely large corn crop weighed on deferred values. The rapid pace of those planting operations, amid favourable weather conditions, also added to the bearish sentiment in those contracts.

Wheat futures at the CBOT, KCBT and MGEX were lower on the week. The quick seeding pace for U.S. spring wheat, combined with favourable weather for the development of the U.S. winter wheat crop, facilitated some of the downward price action. The weather for wheat development in Europe also has improved, which contributed to the price weakness.

USDA’s report, meanwhile, was considered supportive for wheat and helped to temper the price declines. The USDA pegged 2011-12 U.S. wheat ending stocks at 793 million bushels, down from the previous month’s 825 million. World wheat carry-over in 2011-12 came in at 206.27 million tonnes, down from the March forecast of 213.1 million.

There are indications that soybean values have established their springtime high and that it will take some weather-related issues in order for prices to make another push to the upside.

Some potentially bearish influences include more acres being seeded to soybeans in the U.S. this spring than anticipated. There have already been some cold-weather scares for corn, which could also translate into more acres to soybeans than expected, especially if those readings return.

China also is a wild card in the soybean market. There is no doubt that this country has front loaded its soybean purchases. This leaves the possibility of cancelled sales by China as we head into the new crop year, especially if prices push significantly lower.

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