Pushed along by what we now know as the worst drought in American agricultural production in over 50 years, oilseed markets have rallied sharply this summer.
Chicago soybeans futures have soared $5 a bushel since the beginning of June, while Winnipeg canola futures have jumped $78 a tonne.
The shock of lower than expected production on both oilseed fronts is likely incorporated into current prices. Moreover, it appears the process of finding a price level high enough to curb demand within the context of the reduced North American oilseed supply is still at work.
That said, as soybeans and canola prices stretch into contract highs, there can at least, at times, be periods of corrective selling to address technically overbought conditions.
Winnipeg canola futures currently trade near contract highs. They do, though, struggle to keep up with the soy complex and remain seemingly undervalued relative to beans.
While high priced, the canola market remains broadly range-bound since peaking initially around mid-July. November canola futures briefly tested the upper end of the range near $645 earlier this week, but faded back from those lofty levels.
There's still no conclusive indication for the canola market's inevitable breakout direction -- up or down -- from the $600 to $645 a tonne trading-range the November contract has been caught in over the past seven weeks.
The market bias is currently upward, but November canola obviously needs to prove itself with a confirmed break above overhead chart resistance to suggest the next leg will indeed be higher.
Canola will not be able to do that on its own, though. Continued bullish leadership from the Chicago Board of Trade soy complex will be required. If realized, such a move upward through resistance could be just what it takes to inspire fresh speculative fund buying interest.
A little caution here. Yes, the American bean crop is short and will likely be confirmed again in the Sept. 12 United States Department of Agriculture production and supply/demand report. Yes, the Canadian canola crop is not yielding particularly well this year, suggesting overall crop size will be fall below 15 million tonnes in 2012. That's well short of industry expectations earlier on in the growing season. And of course, demand for oilseeds remains strong. All oilseeds remain fundamentally bullish.
But we are into the month of September, and the seasonality of the broader financial markets tends to be bearish. In fact in most years, September and October are the most likely time for financial markets to break down.
No one really knows for sure why that is. Some figure that it's because portfolio managers sell out of losing equity market positions ahead of their year ends in October. Some also blame analysts, who have a habit of downsizing their annual estimates for companies this month now that first-half results are in.
As a seasonal indicator, it's been pretty reliable. And this September, there are some other issues to fret about. Technical indicators suggest the S&P 500 Stock Index is overbought and vulnerable to a pullback.
Meanwhile, equities have a history of moving lower in the run-up to an American presidential race, especially a tight one like what we currently see taking shape.
Now, the ag markets this summer seem to have broken ranks with its once fairly close trend relationship with the outside commodity (energy/metals) and financial markets. And fundamentally, that bullishness in the ag sector certainly is justifiable in lieu of the 2012 U.S. drought. But if we do see a period of speculative fund long liquidation develop in capital markets -- even if for only a brief period of time -- ag markets are likely to be negatively affected.
But then again, if financial markets can even just hold steady during this period of seasonal weakness, then the ag market will be better positioned to have their own fundamentals dictate price direction.
CWB Canola PROs
Something new for the canola market: In addition to marketing canola through the traditional open market channels, Prairie farmers who contract their canola through the CWB's new Harvest Pool program can expect initial payments of $475 for No. 1 Canada grade canola and $462 for No. 2 Canada grade.
The initial payments are a portion of the return farmers can expect to gain from selling their canola through CWB during the entire year. Payments may be adjusted due to market condition or sale progress fluctuations.
CWB's Pool Return Outlook is an early prediction of what farmers could receive as their overall return for the year. PROs for canola were reported as $640 for No. 1 Canada grade and $627 for No. 2 Canada grade.
Farmers still have the opportunity to sign up to be a part of the Harvest Pool program. The deadline to sign up is Oct. 31. The marketing period is between the start of harvest until June 30, 2013.
CWB is not offering an Early Delivery Pool for canola in 2012-13 as it is downing for wheat and durum, mainly due to the timing of its program launch. CWB is also not offering canola cash contracts to farmers at this time. Instead, CWB may purchase cash canola through various grain handling companies.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.