Duvenaud: Crop prices move higherCanola futures have had a $50-per-ton rally so far in June. The positive school says it’s from the dryness on the western prairies. There is no chart signal the move is over and unseeded soybean acreage is supportive.
By: John Duvenaud,
WINNIPEG, Manitoba — Canola futures have had a $50-per-ton rally so far in June.
The positive school says it’s from the dryness on the western prairies. There is no chart signal the move is over and unseeded soybean acreage is supportive.
The negative school says that crushers are buying up now to cover themselves until the new crop and soon will quit buying. They also note that canola seasonals typically peak during June.
Canola prices remain firm
Canola futures continue to incorporate a risk premium because of uncertainty in production. Supplies for 2015 to ’16 will be extremely tight given the year-over-year decline in production coming on the heels of a historically tight carryover. The canola market has a certain amount of inelastic demand. Domestic crushers and certain export markets such as Japan and Mexico have to buy, regardless of price. These buyers are stepping forward more aggressively because the dryer conditions have caused irreparable yield deterioration. The market appears to be getting away from them, as the November futures closed above the psychological $500 level.
There is an old saying among floor traders that when a market moves above these types of barriers, there is usually enough momentum to cause further upside to the $530 to $540 area.
Soybean prices have also strengthened from adverse rains in the southern regions, which will hinder planting progress. It appears 2 million acres of soybeans might not be planted this year, so the fundamentals for 2015 to ’16 are not as burdensome as earlier anticipated. Stronger soybean prices have allowed canola some breathing room. Expect the bean complex to edge higher when the unplanted acres are confirmed by the upcoming U.S. Department of Agriculture report.
Durum prices higher
World durum prices have been ratcheting higher in the past couple of weeks for three reasons. First, the European durum crop has experienced adverse dry conditions in France, while yields in Greece and Spain are coming in lower than anticipated. Second, Tunisia and Algeria durum production will be down an estimated 40 percent from last year because of extreme drought- like conditions in the past two months.
We anticipate an increase in import demand from North Africa. Third, the Canadian crop continues to suffer from below-normal precipitation. We were earlier anticipating a 2015 crop of 5.5 million metric tons, but it looks now closer to 4.7 million metric tons, below last year 5.2 million metric ton. Finally, the smaller crop is coming on the heels of a historically tight, low-quality carryout. Only the U.S. durum crop is experiencing favorable conditions.
Last year, the U.S. market lead world prices higher, but for 2015 to ’16, the Canadian market will be dependent on North Africa and Northern Europe for price direction.
Wheat will rally
We anticipate a wheat rally in the next month to make our final sales recommendation. Parts of the Russian spring wheat region along with Germany, Romania and a large region of France have experienced less than 50 percent of normal precipitation in the past month.
Alberta and western Saskatchewan are in a similar situation, receiving less than 40 percent of normal precipitation. India’s wheat region has deteriorated, causing it to buy Australian wheat earlier in June. Australia is in the cusp of El Nino, causing dryer conditions as winter wheat seeding wraps up.
Editor's note: 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.