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Published January 16, 2012, 12:01 PM

Pea movement shows signs of slowing

WINNIPEG, Manitoba — Peas still are being exported, but the pace has slowed. Blame credit problems for European traders, but also blame the general slowing of global economies. Trade of commodities is being hampered by tight banking capital.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — Peas still are being exported, but the pace has slowed. Blame credit problems for European traders, but also blame the general slowing of global economies. Trade of commodities is being hampered by tight banking capital.

That’s not to say users won’t pay up if they have to. Prices still are very much on the high side of normal.

The 2011 Canadian pea crop was small — 2.1 million tons. The size of the crop has been dropping for a few years now. Last year’s crop was especially small, with the loss of seeded acres caused by flooding. Total supplies dropped from 4 million tons in 2010 to 2.7 million tons in 2011.

Prices still are good. You should be able to find Manitoba-delivered prices for green and yellow peas at $9 per bushel. Saskatchewan freight-on-board bids are $8.50 per bushel.

Trade has been slow since harvest. Plants generally took in and processed their contracted peas, but since have been reluctant to buy aggressively. That said, at current rates, the carry-over will be a modest 200,000 tons, so maybe the slow pace is the best that can be expected. It’s slow compared with the past few years, but it is, in fact, the most that can be shipped at a sustainable pace.

The lack of snow cover is disquieting for the 2012 crop, and the Indian rabi pulse crop is hurting.

Drought kept plantings on the light side, and now it is dry in the middle of the growing season.

Canary stable

Canary has been trading from 24 to 28 cents per pound since November 2010. That’s a long time for a market to trade flat at expensive levels.

However, fundamentals are tight. The Canadian crop only was 102,000 tons in 2011, and total supplies only half of two years ago.

Mexico traditionally is the largest buyer of Canadian canary, but Mexico’s imports are down 25 percent this year because of new restrictions on weed seeds. This probably is a permanent change, which shouldn’t have much long-term effect on trade, except that processors are spending more time cleaning.

Total global Canadian exports appear likely to be 110,000 tons in 2011 to ’12, down from the 180,000-ton average in the past two years. This suggests inventories in user hands must be tight.

There appears to be little downside risk in canary, although the charts, after such a long period of stable prices, suggest a sizable move. The direction is the unknown. Canary is in the lower third of cropping options in terms of profitability, so it might be a good candidate for planting this spring.

Dry South America lifts canola

Canola continues to climb because of dryness in South America. A lack of rain has tempered yield potential. Temperatures remain above normal. Argentine soybean production is estimated at 48 million metric tons, down from the U.S. Department of Agriculture’s 52 million-metric-ton estimate. Brazilian soybeans are pegged at 73 million metric tons, down from 76 million metric tons. There is potential for further reductions given the current forecast. Oilseeds are incorporating a risk premium.

The rally in beans has spurred domestic and export demand for Canadian canola. Canola futures have rallied $30 from the recent lows. End users are getting nervous. Japanese buying has stepped forward while rumors circulate of additional business to other destinations. Stronger vegetable oil supplies have enhanced domestic crush margins. Canola exports are running 700,000 metric tons ahead of last year while the crush pace is 150,000 metric tons more than last year.

We project a 2011 to ’12 carry-out of 900,000 metric tons, down from the 2010 to ’11 carry-out of 1.8 million metric tons. This is low, as the five-year average also is 1.8 million metric tons. The speculative fund position is neutral. There could be buyers in upcoming weeks if the rally continues. March futures are above the 20- and 50-day moving average, and trend following systems will reflect strong buying signals.

The tighter fundamental structure will cause the market to encourage acreage for 2012 to ’13. With a crop problem, prices could jump quite sharply during spring and summer. There is potential for additional upside in the short term.

New crop spring wheat: Don’t sell

September bids for No. 1 Canadian western red spring wheat at 13.5 percent protein have been hovering in the range of $6.50 to $7 per bushel in western Canada. Be patient at this time given the uncertainty moving forward. Western Canada has experienced below-normal precipitation and above-normal temperatures so far this winter. Conditions are similar in the U.S. spring wheat region and we don’t see changes in the 30- or 60-day forecast.

The U.S. will experience above-normal record temperatures in January, making the hard red winter wheat crop vulnerable.

A large portion of Ukraine, Romania and Poland have less than 50 percent of normal precipitation in the past 90 days. The dry area has spread to the spring wheat region of Russia and Kazakhstan in December. Wheat markets are nervous given the situation in Canada and North Dakota.

Duvenaud publishes the Wild Oats Grain Market Advisory. For a free copy, call 800-567-5671