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Published September 23, 2013, 10:33 AM

Soybean harvest under way

Soybeans are coming off in southern Manitoba and buyers are geared up to handle the flow.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — Soybeans are coming off in southern Manitoba and buyers are geared up to handle the flow.

There was never a time this year when you could have sold soybeans at a higher price than is available today so if you have nothing priced that’s the best position you could be in. The story this spring, when American plantings came in at 77.7 million acres, the largest crop ever, was that there would be abundant supplies this fall but the dry August changed that story. Now soybeans are in for another year of tight supplies and good prices.

The American situation in particular is going to be tricky. Stocks could be down to pipeline levels by next summer.

The world is assuming that South America will boost production dramatically this winter, and it probably will. But that crop is not even planted, let alone harvested, let alone loaded onto vessels.

Soybean demand is strong. Cattle and hog prices are great and domestic use is unlikely to drop, despite the fact that the U.S. Department of Agriculture reduced its crush number. Exports, as well, are rising, not dropping.

American new crop export sales at the start of the crop year totaled 800 million bushels, which is a record chunk of the total estimated exports of 1.37 million bushels.

Soybeans have become a crop with which all available supplies seem to get used up every year. There hasn’t been a burdensome supply for years, as opposed to corn and wheat. Fundamentals are positive for soybeans and prices are good.

Chicago Board of Trade futures rallied over $2 per bushel in August and basis levels, both at elevators and at Delmar, are relatively tight. Delmar is paying 95 cents under November Chicago Board of Trade, or about $12.50 per bushel, while elevators are around $12.30. Basis levels could widen in the coming weeks when the American harvest begins in earnest.

Flax harvest

Flax, as usual, is coming off with good quality. Yields are above average and above farmer expectations. Flax plantings were higher in Western Canada this year.

Prices have had a remarkable ride. From under $12 per bushel in December 2011, they rose steadily through 2012, right up until June of this year when they hit $17. At that time, the Canadian carryover looked to be tight at 60,000 metric tons. Prices have fallen hard since then and may be stabilizing now, but harvest pressure is just in front of us.

The American crop was a small one this year. Plantings dropped from 340,000 acres to 220,000.

Black Sea flax has pretty much taken over the European market, but the crop was not the best this year.

The carryover next summer may be a bit higher than this year’s, but supplies will remain tight. Elevator bids in southern Manitoba are around $13.50 per bushel.

Soybeans underpin canola values

Canola prices in Western Canada remain under pressure as harvest progresses, but the U.S. Department of Agriculture report was supportive for the overall oilseed complex. The U.S. soybean fundamental structure will remain historically tight for the 2013 to ’14 crop year.

The function of the market is to ration demand by turning export business away from the U.S. toward Brazil and Argentina. The U.S. soybean market needs to encourage acres next spring and the overall soybean complex cannot afford a crop problem in the South American crop. Traders anticipate larger acres and record production, but the oilseed markets will be very sensitive and may incorporate a risk premium.

Soybean fundamentals will limit the downside on canola. Canola oil is trading at a similar price to soybean oil in the U.S. Prices will be closely aligned to soybeans for this reason, despite the larger crop projections for Canadian canola.

We continue to hear of record yields. Farmer selling is coming in larger than earlier anticipated. Basis levels continue to slowly weaken as the commercial system fills up. The U.S. soybean harvest has yet to come on stream so the market is still contending with old crop tightness in the U.S. to a certain extent.

Barley market trend lowers

Cash barley values in Southern Alberta are in the range of $190 to $198 for immediate delivery. The barley crop is projected to finish near 9.6 million metric tons, which is up from the Statistics Canada estimate of 8.8 million metric tons. The function of the barley market is to encourage demand through offshore movement. The U.S. corn offered into Southern Alberta feedlots at $205 per metric ton for November delivery is keeping pressure on domestic feed grain prices.

Ukraine and France have experienced a surge in barley exports early in the crop year, which has limited demand for Canadian barley in North Africa and the Middle East. Therefore, export interest has been limited early in the crop year and we will only see an increase in offshore movement December forward. We see the Canadian barley market lacking demand in the first half of the crop year.

Cattle on feed inventories in Alberta and Saskatchewan will increase in January through March, resulting in larger domestic feed consumption. Secondly, export movement will also increase at this time. We are expecting a seasonal rally in feed barley next April.

Wheat protein premiums increase

Last year, high protein spring wheat and durum were in plentiful supplies.

For 2013 and 2014, average protein will come in below the 10-year average.

We are seeing premiums in the country system increase as companies struggle to cover sales of high-protein spring wheat and durum.

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

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