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Published April 29, 2013, 11:06 AM

Hard to protect new crop soybean price

One would think a farmer easily could have hedged new crop soybeans at profitable levels, given the great cash prices over the winter. It was never that simple, however, because new crop was always discounted.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — One would think a farmer easily could have hedged new crop soybeans at profitable levels, given the great cash prices over the winter. It was never that simple, however, because new crop was always discounted.

It was always hard to protect yourself with new crop soybean hedging. As for a put option, Chicago Board of Trade November soybean futures trade at $12 per bushel. The Manitoba basis is about $1 per bushel, so the best new crop price you can guarantee yourself is $11 (Canadian) per bushel. To do so, you would have to buy a CBOT $12 November put and they trade at 70 cents per bushel. The best you could reasonably do in today’s market is to buy a $12 November put, guaranteeing yourself $11, and it would cost you 70 cents. Your net would be $10.30 per bushel.

That’s not an especially attractive new crop guarantee. It may make sense if you think prices could tank even from here, but soybean demand would have to drop hard. That’s possible but unlikely.

These numbers have not changed a great deal over the winter. There was never a time that the futures allowed you to lock in a great new crop soybean price.

The bullish case for canary

Canary has become a health food in Latin America. You grind it, mix it in a blender and drink it like a milkshake. Apparently it helps with hypertension and diabetes.

Google “canary seed milk.” This is not out of the-blue. Canary exporters have been aware that canary was moving into human consumption markets for a couple of years. It looks like the concept is spreading.

The move from a birdfood ingredient to human consumption may help explain why Mexico has tightened its rules on canary imports, although, of course, its canary purity import standards are more stringent than domestic Canadian grain use specs. Perhaps the human use argument helped sway the moderates when the restrictive rules were put in place.

The amount of usage is hard to quantify. If 1 million people used 2 ounces a week, it would take up 3,000 metric tons a year. If it were 10 million people, that’s 30,000 metric tons. Safe to say there probably aren’t 10 million people drinking canary shakes.

Canary charts do show that every time prices appear to be slumping, some buyer steps in.

Exports are certainly dropping, not just to Mexico, but around the world.

Cash tightness lifts canola

May canola futures tested contract highs the week ending April 19, as the market anticipates lower farmer deliveries and tighter available supplies in the next month. Companies that are short on nearby commitments will stand in for delivery on the May futures contract, given the strong basis levels in the country. Road bans are in place across Western Canada and with spring seeding around the corner, commercial ownership will drop sharply.

The futures market is expected to be extremely volatile, allowing farmers to catch up on sales or to price basis contracts.

The weekly domestic crush pace dropped sharply the week ending April 19, suggesting that demand is easing at the higher cash levels. Major exporters have stepped to the sidelines for now. A lack of fresh commercial buying will limit the upside in the market later in May.

Seeding is expected to run two to three weeks behind normal across Western Canada. The market does not like production uncertainty coming on the heels of historically tight ending stocks; therefore, we may see the November futures market incorporate more of a risk premium.

The weather pattern is expected to change during the first week of May. Once tractors start rolling across Canada and the U.S., the risk premium in the market will erode. The crop can basically be seeded in two to three weeks with modern equipment. The South American soybean harvest continues to advance with Argentina nearing 50 percent complete, while Brazil is in the final stages. Export demand for U.S. beans will subside in upcoming weeks.

New crop feed barley

Feedlot bids in Southern Alberta continue to hover in the range of $290 to $295 for nearby delivery. Similar to canola, available supplies of barley are expected to tighten in late April and May from road bans and spring seeding. But the upside will be limited by wheat and imported dried distillers grains, which are trading at a discount to barley in the major feeding regions.

We are seeing more widespread use of lower-quality milling wheat in the feed rations. Feedlot inventories usually reach a seasonal high in late April and then start to decline into the summer months. Lower feed demand also will limit the upside in the barley market moving forward. Export interest has subsided for the time being, with world values running at a $40 to $50 discount to current offers freight on board Vancouver, British Columbia.

Editor's Note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, either call 1-800-567-5671, email admin@canadagrain.com or visit http://canadagrain.com.

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