The market correction that drove canola futures from a high of $628.40 per tonne Feb. 9 to a low of $541.90 March 11 might have reached bottom.
You would think that the earthquake and tsunami in Japan, the biggest customer of Canadian canola, would have driven the oilseed’s price much lower, but it didn’t.
As this column was written March 14, three days after the earthquake, new crop canola was actually climbing. Soybeans and corn also closed stronger March 14.
This might be evidence that markets believe crop prices have fallen far enough to reflect the events that have happened over the last month.
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The drought in Argentina broke in February, and late season rain saved the soybean crop there. It won’t be as large as last year, but it will be better than expected in February.
Brazil generally also had good weather in February and March, although too much rain in Mato Grosso do Sul, the country’s fifth largest soy producing state, could prevent a record setting crop.
Forecasts now put Brazil’s soy crop at 70 million tonnes, up from a forecast of 68.5 million in February.
Also, China’s winter wheat crop appears to have survived the winter drought. Emergency irrigation, cloud seeding and a late winter snowstorm provided enough moisture to preserve the crop and allow it to be ready for spring rain.
Oil prices climbed $15 per barrel on the unrest in North Africa and the Middle East in the last month, creating worries that high fuel prices would derail the global economic recovery.
All these factors caused the big speculative funds to pull back.
However, they might believe prices are now appropriate to current conditions.
Investors are still jittery about the civil war in Libya and demonstrations in other Arab countries. But oil exports from the region are not yet seriously affected, so oil prices have halted their climb and even slid back a little.
As Ed White’s story on page 6 shows, many economists believe the world’s economy is on a better footing today than it was in 2008 and should grow this year.
French consultancy Agritel told Reuters News Agency this week it believes demand from importing countries will pick up in April and investment funds might start to cautiously move back, particularly if tensions in the Middle East moderate.
Several weather problems also have the potential to spark a rally.
A lot of the U.S. hard red winter wheat crop is still in danger from drought. Western Canada and the northern U.S. plains have a heavy snow pack that will likely cause seeding problems.
Russia will likely have a better crop this year, but there is a strong chance the government will keep the export ban in place until the end of the year.
The earthquake in Japan will disrupt trade for a while, but despite the horrible human toll and devastation to homes, industry and infrastructure, the country will still buy grain and oilseeds.
So we might be in for better prices ahead, but keep an eye on Saudi Arabia, the world’s largest oil exporter. Dissidents had called for a “day of rage” across the country March 11 but it did not materialize, largely because of an intimidating display of police and military presence.
The Saudi government is also sending troops to quell unrest in its tiny neighbour, Bahrain.
But if an Egyptian style citizen revolt develops, that could send oil prices soaring and investors diving for cover.
