Monday, August 17, 2009

Frost and friction in oilseed market

Considering that last week’s USDA reports were pretty negative, the markets held up reasonably well. Corn and wheat look to be searching for a bottom but could have some further downside if we escape the next month or so without a significant frost event. Speaking of frosts there is a frost forecast to hit Canadian canola growing areas this week (around the 20th). ProFarmer Canada is a bit dubious but thinks that there is some major frost risk later in the month.

The oilseed markets has been acting strangely, dropping through the floor after failing to break through a key resistance level this week. This is despite further evidence of excellent sales of both old and new crop out of the US. Over 1mmt of new crop sales and another 260,000t of old crop sales have been executed while a further 760,000t of new-crop beans are added to export bookings.

Large sales to China are welcome but need to be treated with some caution as there is a potential trade tiff brewing between the US and China. Some are now wondering if China is aggressively front-loading purchases ahead of potential trade retaliation that could include slowed US bean buys.

In local news a crop tour of the WA northern cropping zone last week revealed that canola crops were faring by far the worst, particularly for those sown on sand plain country. Patchy emergence and some browning off is being attributed to wet planting weather, shallow root establishment and some hot dry days. Time will tell whether recent rain will help these crops recover in time to post average yields, but none of the farmers we were talking to were expecting better than 1t/ha.

There are also worries about crops in the northern cropping zone on the east coast. Without a decent rain before the end of August these crops have the potential to fall-over quickly and this coupled with a northern hemisphere frost may prove the right tonic for a fundamentally driven grain market rally.

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