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Published June 16, 2015, 09:53 AM

Duvenaud: Canary market on the upswing

The canary market is finally showing a bit of strength. Prices had been falling since 2011 and had been as low as 24 cents per pound freight on board. There’s more at 25 cents, but it would probably take 26 or 27 cents to source any volume.

By: John Duvenaud,

WINNIPEG, Manitoba — The canary market is finally showing a bit of strength. Prices had been falling since 2011 and had been as low as 24 cents per pound freight on board. There’s more at 25 cents, but it would probably take 26 or 27 cents to source any volume.

Supply does not appear to be an issue, but demand is. Importers around the world have been struggling under currency fluctuations against the American dollar. Until recently, they would be behind the 8-ball as soon as they signed a trade deal. Their competitor buying the next day would get a better deal. Accordingly, importers slowed purchases and ran down their inventories. This was especially applicable to Mexican importers.

According to government statistics, Canada is out of canary, and has been for three years. The amount of canary in long-term storage in Canada is the big unknown. A couple of years ago, knowledgeable traders thought there might be 75,000 metric tons in wooden bins in the back pasture.

That has to be getting used up. In 2013, Canada grew 131,000 metric tons and exported 164,000 metric tons. In 2014, it grew 125,000 metric tons and exported 170,000 metric tons.

That’s a shortfall of 78,000 metric tons without considering seed and domestic use, and would just about take care of those stocks. Traders don’t seem to be having trouble sourcing canary, but that might be because most are shipping less than normal.

Oats futures rally

Chicago Board of Trade oats futures are strong. Cash July rose more than 40 cents per bushel since early May, rising from $2.24 per bushel to $2.69. Futures are considerably more volatile than physical trade, and their general movement has been lower from March 2014 to May 2015.

Futures finally dropped to the point that physical oats could no longer be delivered against futures at a profit. The bulk, by far, of all North American oats are grown in western Canada. Manitoba oats average $2.80 and Saskatchewan oats average $2.65, so, even with an 80-cent dollar, the transportation costs preclude delivery against short CBOT futures.

Whoever trades oats futures has figured this out, and that will be the reason behind this rally.

CBT oats futures are only a general indicator for the value of oats in Western Canada, but for these to be finally moving up will certainly not hurt local prices.

Canola trends higher

Canola prices continue to ratchet higher with ongoing crop concerns.

Recent frosts, along with below- normal precipitation in much of Western Canada, has caused the canola market to incorporate a risk premium.

Producer selling has been increasing with cash prices reaching close to $10.50 per bushel in many areas, and touching $11 near crush plants.

Domestic crush margins have been deteriorating, and fresh export business has subsided. Commercial demand at the higher levels has subsided for the time being. Without any major precipitation in the forecast, the market has potential to trend higher.

Looking forward, basis levels remain relatively wide for new-crop positions. If these dryer conditions prevail into the flowering season, domestic crushers and exporters will be more aggressive on the basis to attract farmer selling. Be patient with new-crop sales.

Milling wheat

The milling wheat market has been strengthening for four main reasons.

Ongoing rains have plagued a larger portion of the U.S. hard red winter and soft red winter wheat crops. Analysts have lowered production estimates on yield and quality concerns. Second, Alberta and western Saskatchewan have received less than 40 percent of normal precipitation in the past 45 days. Third, there are pockets in Europe and Russia that have also experienced dryer conditions in the past month, resulting in lower crop production estimates. Finally, Australia is in the final stages of seeding winter wheat, but also has struggled with limited moisture.

Despite all these issues, it is difficult to sell wheat in the export market, given the large carryover stocks from the U.S. and other major exporters. Northern Hemisphere winter wheat harvests will move into full swing in the next month, saturating available demand in the short term.

Feed grain prices jump

Lethbridge, Alberta-area feedlots were buying feed barley at $218 per metric ton delivered, up $10 per metric from the previous week. Feed wheat also jumped up to $217 per metric ton delivered in southern Alberta, up $15 per metric ton from the previous week.

Duvenaud publishes the Wild Oats Grain Market Advisory. For a free copy, call 800-567-5671 in Western Canada and North Dakota. All others call 204-942-1459.