Wednesday, October 28, 2009

Canola carnage on Chinese import regulations

All hell broke loose in the Canadian canola pit on Friday when news that the Canadian Food Inspection Agency (CFIA) planned a conference call with its local grain trade on Friday to discuss a number of issues; chief among them being potential Chinese revisions to quality regulations on imports of Canadian canola.

The situation goes back to a report earlier this month that China had expressed concerns regarding blackleg risks in Australian origin canola. The CFIA call might involve a Chinese request to provide blackleg free certification on Canadian canola exports. Another issue may involve establishing weed seed tolerance levels.

This really shows how vulnerable we are to changes in requirements in importing countries, particularly those we haven’t had a long track record in dealing with. China imported a lot of Canadian canola last year and any disruption to this trade will have ramifications here.

Notwithstanding issues with canola, it was another better week of trading in grains – assisted by the weaker $US and further speculative interest. It is hard to find any fundamental reasons for the rally – although the US is on track for its slowest ever harvest of corn and beans (with another wet week forecast across harvesting areas). Partly offsetting this though is the Brazilian soybean plant which is off to a flying start.

The Ukraine winter plant is being hindered by dryness is some areas, but conditions are improving and rumors are that the Russian Government plans to start intervention buying soon. This gave international grain markets a better feel than what we have witnessed for the past few months. Growers around the world are very slow sellers and buyer stocks are running down. This should assist prices in grinding gradually higher but any major rallies will be well covered by grower selling. So don’t expect prices to explode higher; plan to sell enough to cover harvest cash flow needs so you can dodge the normal bout of harvest weakness.

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