Crop prices shoot higher | Rally could change seeding plans and cool market
Canola and spring wheat prices shot up in the wake of bullish U.S. seeding intentions and stocks reports but the bounce could be short-lived, according to a Canadian analyst.
The grain trade was caught off guard by the U.S. Department of Agriculture’s March 30 Prospective Plantings report.
The forecast for 95.9 million acres of corn was above the highest pre-report estimate in a Dow Jones Newswires poll of 20 grain industry analysts and the 73.9 million acres of soybeans was below the lowest estimate for that crop.
The report instantly bolstered soybean and canola markets.
Prices for the nearby May contract shot up 5.3 percent for soybeans and 4.1 percent for canola between the close of markets on March 29 and the opening on April 2.
November soybeans and canola were up 6.4 percent and 4.6 percent respectively over the same time.
But growers shouldn’t put too much faith in the report because the survey of 84,500 U.S. farmers was conducted during the first two weeks of March missing the latest soybean rally in response to South America’s diminishing production prospects, said Marlene Boersch, managing partner with Mercantile Consulting Venture.
She doesn’t buy that U.S. growers will plant 95.9 million acres of corn, the largest crop since 1937.
“We think that number is too high, definitely too high,” said Boersch.
“We just think it is a bit overdone on the corn and underdone on the soybeans.”
She is forecasting 93 to 94 million acres of corn and up to 77 million acres of soybeans. If that happens soybean and canola prices will likely soften.
“Right now we would consider hedging up to 35 percent of the canola, partly because it covers the variable cost,” said Boersch.
Bruce Burnett, the CWB’s director of weather and market analysis, said the fight over acres in the U.S. is far from over.
“What the report on (March 30) did was really set the table here for some last minute acreage battle between soybeans and corn to duke it out for the remaining uncommitted acreage out there,” he said.
He agreed with Boersch that soybeans will win that war due to stronger prices, but he believes the acreage changes will be marginal and there will still be more than enough corn supply for the 2012-13 marketing campaign.
Chuck Penner, analyst with LeftField Commodity Research, said the U.S. report was welcome news for the stalled canola market, pushing old crop canola as high as $630 per tonne.
“We kind of needed the soybean market to take off to get canola up to those levels because it was about at the maximum spread it could be relative to soybeans on the futures so for canola to go up further we needed the bean market to go up further,” he said.
Boersch thinks there is still room for old crop canola prices to move up independent of soybeans. Canadian processing plants crushed an “outstanding” 190,000 tonnes of the crop last week and ships in Vancouver were loading and waiting to load another 400,000 tonnes of canola.
“There’s still a little bit of legs into the India old crop canola market,” she said.
Jonathon Driedger, market analyst with FarmLink Marketing Solutions, expects the report to have little impact on Canadian seeding intentions.
“For a while already, the economics have been showing that growers should plant about as much canola as they’re comfortable growing,” he said.
The report was also friendly for another major Canadian crop. The nearby May and the November contract for Minneapolis spring wheat increased 7.8 and 7.1 percent respectively between March 29 and April 2.
U.S. growers intend to plant 11.98 million acres of spring wheat, which was below the lowest estimate of the 20 analysts surveyed by Dow Jones.
“That will keep the spread between Minneapolis wheat and Kansas City or Chicago fairly wide. It should help keep protein premiums fairly high as well,” said Penner.
Growers plan to seed 289,000 acres of flax, up 62 percent from 2011 but down 31 percent from 2010.
That could creat a market for Canadian flax, but last year the U.S. imported some flax from the Black Sea region to meet its needs.
Driedger said corn stocks were a little lighter than expected, which led to an 8.8 percent surge in old crop corn prices between March 29 and April 2, which has supported Canadian feedgrain prices.
He thought the biggest surprise in the minor crops was the 30 percent increase in barley plantings from last year’s record low, which would still be the third smallest U.S. barley crop on record.
“That’s something we have to keep in the back of our minds here,” said Driedger.