A jumble of factors are hurting crop markets: currency gyrations and surges and slumps in the price of oil, gold and other commodities.
As a result, it can be difficult to disentangle the impact of Statistics Canada’s discovery of much bigger-than-expected prairie wheat and canola crops and a smaller-than-expected oat crop.
The final crop production report’s finding for canola is particularly difficult to interpret because that crop also faces specific supply and demand issues.
“It’s a convoluted mess,” said market analyst Greg Kostal.
Read Also
Bond market seen as crop price threat
A grain market analyst believes the bond market is about to collapse and that could drive down commodity values.
Statistics Canada found that Canadian farmers grew an 11.8 million tonne canola crop this year, which is a million tonnes more than many trade guesses. However, canola prices remained strong, following the same rising trend established early in November. The January Winnipeg contract closed Dec. 4 at $412.70 per tonne.
Canola’s strength surprised many because not only had Statistics Canada found much more canola, but China had brushed off Canada’s request to open its ports to canola during prime minister Stephen Harper’s visit to China. Also, the dispute with the United States continues to drag on over salmonella in canola meal.
At the same time, rumours of a Viterra sale of a 60,500 tonne shipment of canola to China for December delivery cheered traders, as did news over the weekend of canola oil sales to China.
“There are so many forces going on,” Kostal said.
The situation is less complex in other commodities, but there too, complicating factors make it unclear just what kind of impact Canada’s bigger spring wheat crop has had on prices.
Minneapolis spring wheat futures fell through most of last week, and American agriculture market news advisories made much of the Statistics Canada report, but at the same time the U.S. dollar surged in value compared to most other currencies and gold and oil slumped late in the week.
Generally, a rising U.S. dollar means lower world prices for grain, suggesting some of wheat’s weakness could have been from the currency situation. Yet with gold and oil falling, the weakness could have been partially caused by cross-commodity factors.
Oat analyst Randy Strychar, who spoke at the Prairie Oat Growers Association’s annual meeting Dec. 3, wasn’t surprised by Statistics Canada’s finding of 300,000 fewer tonnes of oats than many in the industry expected.
“That’s what I thought they’d find,” he said in an interview.
“I think that (reduction in production estimates) is going to continue.”
Strychar is moderately optimistic about oats prices, but the post-report market isn’t. Rather than surging on the reduced estimate, it continued a steady downward trend that has taken March Chicago oats futures from more than $2.80 per bushel Nov. 12 to about $2.56 Dec. 4.
At this time of year, many market analysts and traders pay less attention to North American supply considerations and focus more on the demand side. As a result, canola and oats may not be experiencing a typical reaction to a surprising report.
However, Kostal said canola’s recent rally is also caused by the strength of the world vegetable oil complex based on continuing supply concerns from last crop year. Consequently, canola may lose its momentum now that the market is turning to demand concerns.
“I think we are getting to the upper end,” Kostal said.
“There are a lot of demand warning signs that we’re running out of gas.”
