WINNIPEG, Manitoba -- In contrast to the North American harvest, with its fabulous yields and quality, the southern hemisphere wheat harvest, under way now, isn't so good. Earlier Australian frost is showing up in quality damage.
Earlier predictions of a 25.5-million-ton crop now look like 24 million tons. The Argentine wheat crop also had frost and, while it should be bigger than last year's 9.5-million-ton disappointment, it might not be much bigger.
World vegetable oil markets support canola
Canola values in Western Canada are locked in a narrow trading range.
World vegetable oil supplies are not as large as earlier anticipated, which has supported canola at the lower levels. Stronger soybean prices have underpinned the oilseed complex.
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At the same time, large available stocks from record Canadian production continues to limit upside potential. Farmer selling continues heavy with elevator capacity limiting the volume. Exporters are only accepting supplies to satisfy nearby sales while domestic crushers also have their nearby requirements covered. Basis levels appear to be weakening and the January-March futures spread continues to trade at full carry.
Outside factors are having little influence on the canola market.
South American growing conditions remain favorable and no weather problems are anticipated in the next three weeks. Energy values remain under pressure and the commodity funds continue to trade along the downward trendline in canola. Meal values remain firm and this is the main reason canola has not dropped further. Tight soybean and canola meal supplies are enhancing the crush margin structure domestically and with importers. Chinese demand for U.S. soybeans is underpinning the oilseed complex but this buying interest is expected to subside in March.
Look for canola to trade sideways in the next month. Stronger meal values will continue to support soybeans, but this will have a lesser effect on the canola market.
Durum looking stronger
Tunisia bought two cargoes of optional origin durum in the past week at an average price of $390 cost, insurance and freight. This is up about $30 from the lows earlier in fall. Despite the higher export prices, values in the elevator system remain stagnant because of the larger Canadian crop. The problem is that export and interior elevator prices have divorced because of logistical problems. Companies are having a difficult time moving durum into export position as rail movement is two-to-three weeks behind schedule. Export values from Canada are now in line with the U.S. domestic market.
Morocco's growing conditions are on the dry side. Western Algeria has also experienced below normal precipitation while Tunisia and Libya have received less than 25 percent of normal rainfall early in the growing season. There are also dryness concerns in Southern France along the Mediterranean. Italy and North African countries need to cover requirements from February forward, which will support export values, especially if growing conditions deteriorate in North Africa.
We anticipate lower Canadian and European production for 2014, which has potential to strengthen values later in the crop year. In the short term, expect the market to remain flat. The ability to moveCanadian durum into export position will be the main factor influencing elevator prices in the final half of the crop year. Export demand has potential to increase if conditions remain dry in North Africa.
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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.
