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Published November 25, 2013, 10:39 AM

Canary market routine

The history of canary marketing is that farmers generally believe it is underpriced, given the reported lack of product in Canada, according to official statistics.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — The history of canary marketing is that farmers generally believe it is underpriced, given the reported lack of product in Canada, according to official statistics. Sales are slow until crop production week in January. Then, when new crop prices come out, it becomes apparent that prices the next year aren’t going to be any better. At that point, farmer sales pick up. Most canary is sold in the second half of the crop year.

This year isn’t much different. Brokers report little interest from farmers to sell canary and only anaemic demand from processors. Business is routine.

Canary stocks appear to be tight once again. According to AgCanada, 2013 to 2014 stocks have fallen from 167,000 metric tons to 120,000 metric tons, exports will fall from 137,000 to 105,000 metric tons and the carryout next July will be a rock bottom 5,000 metric tons. By this measure canary is cheap.

Anecdotal evidence suggests that perhaps 75,000 metric tons of canary is sitting, unreported, on farms in western Canada. That goes a long way to explaining how canary keeps showing up at plants when, in theory, it shouldn’t be there.

Canary exports are mostly business as usual. They appear to be about steady although demand from Europe is slowly dwindling. There’s 15,000 metric tons in-store at Thunder Bay so presumably there will be a sizable shipment to Europe before freeze-up. Otherwise, an increasing amount of canary to Europe is moving via container. As with many grains, it’s increasingly easy for smaller users to direct import.

Mexican imports are steady, despite their weed seed restrictions. Canada shipped 3,500 metric tons of canary to Mexico in September.

With most grain prices plummeting canary is looking better and better.

It appears that canary acreage may be higher next spring. $12 per bushel canary has appeal, even with the smaller yields, when it only has to compete with $6 wheat.

Canary prices are unlikely to change much this winter and could conceivably be lower next summer.

Canola

Canola continues to trade in a range as larger supplies meet lackluster demand. As of Oct. 28, Canadian canola exports were 1.7 million metric tons, compared with 2.1 million metric tons last year. The domestic year-to-date crush to Nov. 6 was 1.7 million metric tons, compared with 1.9 million for 2012. Demand for canola is not as strong as in the 2012 to 2013 crop year.

Exporters and domestic crushers are well covered for nearby requirements with producer deliveries running more than 250,000 metric tons per week.

Supporting canola is the tight U.S. soybean fundamental structure.

Chinese demand continues strong and crush margins are favorable as a result of stronger soymeal values. There are limited substitutes for soymeal and the U.S. soybean crush will surge ahead of last year’s pace. The January-March soybean spread continues to trade at an inverse telling producers to sell now, instead of storing over the winter. South American conditions remain favorable and the market is factoring in a record crop size. If any region experiences adverse weather, the market will incorporate a risk premium. Sentiment is a bit nervous moving forward.

Despite burdensome canola fundamentals, the soybean market will continue to support canola and limit the downside. There is potential for a soybean rally in the next month and this could pull up canola futures.

Producer selling of canola is lagging behind last year.

Milling wheat

Minneapolis wheat futures have dropped 50 cents per bushel in the past two weeks. Export demand tends to ease over the winter period. Australia and Argentine growing conditions remain favorable. Argentina is expected to release exports in January, which will satisfy South American (Brazil) demand, which has been a major factor supporting Canadian hard red spring prices. The U.S. Department of Agriculture report was somewhat negative for milling wheat, as the hard red spring wheat carryout was increased.

Hard red winter wheat conditions in the U.S. southern plains are quite good. Larger acreage will result in an increase in production. Weaker U.S. corn prices have eliminated wheat from feeding rations, which will result in a sharp decline in U.S wheat domestic usage for the 2013 to 2014 crop year.

Russia and Ukraine exports have been exceeding last year’s pace and will likely slow down later in the crop year. But prices are still competitive into the Middle East curbing demand for Canadian and U.S. wheat in this region. Winter wheat sowings are basically completed and there is no concern about the upcoming crop at this time.

We are expecting the milling wheat market to trade sideways in the next couple months. There are no major risk factors to increase prices.

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

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