Weather worries rally oilseed markets

Market Focus

Highlights

  • November canola futures surged to $530 per tonne (July 10), up $57 per tonne ($1.29 per bushel) from the June 22 bottom
  • November canola tested the market’s upper-end trading range which has held firm for more than two years
  • Chicago soybean futures have also powered aggressively higher these past two weeks amid weather concerns of their own

Winnipeg canola futures have rallied impressively over the past two weeks as concerns mount about how adverse weather will affect crop production across Western Canada. In addition, speculative fund buying amid short covering in front-month canola contracts has also served to lift futures.

A notable rally in Chicago soybean and soyoil futures during this same period of time fed the bullish vibe of oilseed markets, reacting to its own concerns about hot and dry conditions in the western U.S. Midwest and northern U.S. Plains states, along with the extended outlook for hot and dry conditions to continue.

November canola futures surged up to $530 per tonne (July 10), up $57 per tonne ($1.29 per bushel) from the June 22 bottom.

Traders are growing increasingly concerned about an expanding region of excessive heat as the canola crop enters its flowering stage of development.

Traders are growing increasingly concerned about an expanding region of excessive heat as the canola crop enters its flowering stage of development. As long as this condition continues, trade sentiment on crop size shrinks daily. Ironically, central and northern Alberta has been battling excessive wet conditions, so the yield potential is apt to be quite variable across the Canadian Prairies.

November canola this week has now tested the market’s upper-end trading range which has held firm for better than two years now in the $530 to $540 per tonne zone.

The widely volatile weather markets, though, resulted in a dramatic sell-off of all grains and oilseeds following a bearishly-viewed supply and demand report released by the United States Department of Agriculture and shifting weather forecasts.

Soybeans

Chicago soybean futures have also powered aggressively higher these past two weeks amid weather concerns of their own, until selling off after Tuesday. While eastern areas of the U.S. Midwest have been reasonably well-watered, conditions remain generally hot and dry further west and the extended outlook calls for hot and dry conditions across the U.S. Corn Belt.

Chartwise, November beans gapped above the $10.20 per bushel level to finish at $10.39 (July 10) and briefly traded above the November 2016 high. Of note to this date, November beans have rallied more than a $1.32 from the June low, before pulling back to $10 a bushel.

The managed money spec fund crowd is still net short bean futures and the end user is not well covered. With a ridge pattern potentially setting up, it brings in hot/dry conditions in the long range forecast.

At some point large U.S. old crop stocks, record South American crop production and mostly favourable foreign crop conditions will assume centre stage. But for the here-and-now, the trade is more worried about deteriorating U.S. yield potential.

Wednesday’s (July 12) supply/demand report from USDA could generate fresh impetus to at least temporarily drive market direction one way or the other, but weather issues will continue to dominate trader actions for July into August.

Aussie drought fears

While market attention seems pretty focused at this time on North American crop conditions, quiet observations are coming in about developing drought concerns down in Australia that have the potential to erode Aussie wheat and canola crops.

Conditions for Australian crops have deteriorated to an extent so far in its fledgling growing season that there is already talk that the wheat harvest there may fall below 20 million tonnes, a plunge of more than 40 per cent from last year's record high.

The canola crop in Australia is under similar stress. A seed shortage, besides a lack of rain, has undermined prospects for Australia's canola crop. The Australian Oilseeds Federation has already lowered the bar on its expectations for the harvest. The industry group now pegs Australia's 2017-18 canola harvest at only 3.12 million metric tonnes, a drop of 26 per cent from last year.

Australia is the world's second-ranked exporter of canola, behind Canada, with market share of some 20 per cent.

Bottom line

As hot and dry weather worries drive oilseed markets higher, weather issues are expected to continue to dominate trader actions for July into August.

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.

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Oilseed markets feel the price pressure

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Price positive canola market conditions cannot override bearish global oilseed fundamentals.

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