Duvenaud: Canary under pressure, wheat near lows
WINNIPEG, Manitoba -- On July 18, canary was still trading at 27 cents per pound, freight on board farm. First it was 28 cents, but now 30 cents is catching most trades. Importers are willingly paying these higher prices, plus another 4 to 5 cent...
WINNIPEG, Manitoba - On July 18, canary was still trading at 27 cents per pound, freight on board farm. First it was 28 cents, but now 30 cents is catching most trades. Importers are willingly paying these higher prices, plus another 4 to 5 cents to the processor.
Trade has been slow for several months. The strength in the American dollar is now old news, as it has been relatively flat through 2015, but it made trading difficult for importers when it was soaring in the second half of 2014, and international canary trade slowed. Now these importers are back in the market, and buying. They’re finding canary to be getting a bit more difficult to source.
One difference now is that some small operators are no longer making offers. Usually, it’s easy to find some small processor wanting to sell. Not so much anymore. This has been going on for a couple of weeks now, and traders are starting to take notice.
The stories about the drought in Saskatchewan probably got a few buyers off the fence. Some traders think crops might average as low as five bushels per acre this year. The SaskAg crop conditions report as of July 22 isn’t nearly as pessimistic. It has the canary crop at 14 percent excellent, 65 percent good, 20 percent fair and 1 percent poor.
The rally, up to now, is with old crop. New-crop bids during the same time have rallied from 25 to 27. A chart from Prairie Crop Charts shows canary prices have broken through to the upside. The question is how much more room there is. Canary harvest is not that far away and seasonal trends are definitely down through fall.
The big unknown is the amount of canary still stored on-farm. In 2013 and 2014, Canada grew 256,000 metric tons and exported 334,000 metric tons. That’s a shortfall of 78,000 metric tons in two years.
On the other hand, processors still report getting calls from farmers they had never heard of with thousands of bushels for sale.
Canola prices came under pressure early last week, largely from weakness in the overall oilseed complex and speculative long liquidation. Commercial demand appeared to back away from canola at the higher levels because of limited export movement. Domestic crush margins have been deteriorating with the weaker soybean oil.
After the November futures broke below $500, the market experienced significant long liquidation from the speculative trade. U.S. soybean conditions have marginally improved, and the upcoming weather looks more favorable for pod setting. Recent rains in Western Canada have aided canola development. It is important to realize the crop is not getting smaller at this stage. Analysts are keeping their crop size the same or increasing yield potential so the bullish period from adverse growing conditions appears to be over. On the flip side, dryer conditions are affecting the palm oil crop in Indonesia but the world vegetable oil market is currently focused on the burdensome U.S. soybean fundamentals.
We are surprised by the amount of producer selling in the past three weeks. Weekly deliveries were once again more than 300,000 metric tons for the week ending July 19, so the higher prices have definitely pulled stocks out of the bin bottoms. Farmer selling throughout July has not reflected drought-like conditions, which makes traders think the dryer region of Alberta and Saskatchewan are smaller than earlier projections.
Minneapolis wheat futures trade near contract lows. The recent $1-per-bushel rally is a distant memory moving into harvest. At this time, the world wheat market is absorbing harvest pressure. The U.S. winter wheat crop is 85 percent harvested, while spring wheat is 2 percent complete. The Ukraine winter wheat harvest is 50 percent complete and the Russian wheat harvest is 30 percent finished. French and German harvests are well under way with the winter wheat harvest moving into the final stages.
Given all this selling pressure, we are seeing Black Sea and French wheat trade into Central and South America, which is typically the backyard for North American wheat. Feed wheat from the United Kingdom and Europe was pricing itself into the Eastern U.S. over the past week. We now find U.S. new-crop export sales lagging year-ago levels and export demand for Canadian and U.S. wheat is very quiet.
In the next month, we will see additional pressure from the Canadian and U.S. spring wheat harvests.