Mustard hard to move

WINNEPEG, Manitoba -- If you have a contract for your mustard, count yourself lucky, at least if you're in any hurry to deliver. Mustard is beset by the same transportation problems that every other crop has in this year of record supplies -- lack of transport.

Even if you have a contract, it doesn't mean delivery is guaranteed.

It probably is, since processors will go to great lengths to avoid reneging on a contract with a farmer, but don't be sure. There's a limit to the amount of resources anybody is going to put into storage for a product they can't move.

Most mustard is exported in containers and containers are difficult to source. There are still some containers available and, for the most part, movement is routine. But it is more difficult than usual to get containers, particularly to Vancouver, and processors, when they do get them, have to decide which order they are going to fill.

The result is, for a prairie farmer, limited delivery opportunities and for users, lack of raw product for their manufacturing operations.

It's not a crisis, but it is awkward. Processors are generally taking only contracted mustard. If you have uncontracted mustard you want to sell, you'll have to look around for a plant that can slip in a load.

Yellow moves better than brown since much is trucked to the U.S. Yellow nominally trades at 37 cents per pound spot. New crop mustard can be contracted for 37 cents for December delivery or 38 cents for July.

Yellow prices should stay at about current levels, at least until we can see next summer's weather. If you're waiting for 40 cents for your yellow, the trade doesn't think you'll see it for the 2013 crop.

Brown is a stronger market. Most brown moves to France via container, so it is the mustard that is more difficult to move. Spot brown is about 34 cents per pound. New crop contracts are 34 cents for December delivery and 35 cents for July.

Again, there is probably little downside in brown prices. Brown was a bit of a dog a few years ago, and a lot of acres got shifted to Oriental.

The Canadian brown backlog gradually was used and brown advanced 8 cents in one week in 2011. While yellow seems to be in abundant supply, on the prairies, brown is tighter. Add European users running on empty, and brown appears to have some upside potential.

Oriental is the mustard with ample farm stocks. It had taken some brown acres in 2010 and 2011. The wasabi plant in Alberta is the volume Canadian buyer. Japan is out of the market at the moment. Oriental has become too expensive for the Bangladesh market. They had traditionally bought Oriental when it became cheaper than canola, since consumers like the spiciness of the oil.

Spot Oriental is 28 to 29 cents per pound. New crop contracts don't appear to be available. You'll probably see them in January.

Domestic demand driving canola

In the past week, we have seen country bids increased from domestic crushers, while companies sourcing for export demand have kept basis levels relatively the same. Stronger world vegetable oil prices have enhanced margins causing basis levels from domestic crushers to increase.

We have seen the weekly crush pace jump from 140,000 metric tons per week to more than 150,000. But the crop year-to-date crush continues to run about 250,000 metric tons behind last year. Exports are also lagging with the year-to-date movement at 2.077 million metric tons for the week ending Nov. 15, compared with 2.422 million metric tons last year.

Farmer selling continues to overhang the market with deliveries running over 250,000 metric tons per week, sufficient to satisfy domestic and export demand requirements and keep the commercial pipeline current.

The soybean market remains firm because of ongoing demand from China and stronger meal demand. While conditions remain favorable in South America, the nearby fundamentals for soybeans are rather snug until the harvest starts in Brazil and Argentina. The soy complex will continue to underpin canola until April when the record South American supplies come on the market.

Looking forward, we continue to watch South American conditions. Soybean planting in Brazil is basically finished while Argentina is 50 percent complete.

Feed barley

Southern Alberta feedlots continue to buy barley in the range of $280 to $285 per metric ton delivered. Most major operations have the bulk of their demand covered until late January as feeding margins have been at the highest levels in 2013. Farmer selling continues to be quite heavy with many farmers moving barley stored on the ground. Offshore movement has been limited because of strong competition from major exporters and limited freight-on-board capacity on the West Coast. Year-to-date barley exports from August through October were 141,000 metric tons, compared with 332,000 metric tons last year.

Therefore, barley bids in the country elevator system are largely based on domestic feedlots and local feed mills. U.S. corn values continue to trend lower and we expect additional imports into southern Alberta later in the crop year. This will continue to limit the upside in barley longer term.

Looking forward, we are projecting a seasonal rally in barley in April or May. Canadian barley acres for 2014 are expected to be down by 8 to 10 percent and analysts are also projecting a year-over-year decline in U.S. corn acres. Feedlot inventories in Alberta and Saskatchewan reached their highest levels of the year in late April and early May resulting in stronger domestic demand. The export potential remains largely uncertain because Australian and Argentine crops are in good shape which will weigh on the world market.

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.