Friday, November 25, 2011

Time slipping away for Canola sales.

The canola chart from May this year has been going in one direction, and growers without sales on the book, it has been ugly. All the calls being received in the office has been in regard to canola pricing, and although prices have come off $130 from the high in May, anything above $500 is still a decile 8 number. Meaning over the last fifteen years it has been at this price 80% of the time. Although prices have stabilised around $500 port (VIC) this week, it could differently dip below $500, a price we have not seen since October 2010.

The sharp declines (-$40 from 7th Nov) has been exacerbated by strong grower selling into the falling market, and with a lot of volume forward sold throughout the year, the trade wouldn’t be in a hurry sticking their neck out above the market trying to capture any extra tonnage. With the country sitting on a record crop of 2.6mmt, and with the majority of oil above 43%, crushers need less seed for oil.

International values continue to sink to new lows as Eurozone issues and re-occurring US debt reduction concerns resurface. But generally markets are lacking fresh fundamental news with agricultural markets are trading on macro scares and lower US exports. This has produced selling as US and world banks liquidate positions to shore up cash reserves. The funds continue to be aggressive sellers, unwinding their positions in soybeans. Managed money have reduced their net long position by 18,139 contracts (2.4mmt); the 10th reduction in 11 weeks. The current net long position of 10,133 contracts (1.3mmt) is the lowest since July 2010.

The bears in the global oilseed complex have been targeting ‘intended’ large acreage in South America as another reason for spot soybeans sitting at twelve month lows. However, history is against back-to-back record large yields in both Argentina and Brazil. Last year was more of exception and unlikely to be repeated in 2012

Whilst the bulls are targeting aggressive future Chinese demand, however of late Chinese preference has been for old crop Sth American beans. Cumulative Jan-Oct soybean imports are sitting at 41.5mmt, down 5.4% from last year. Export US shipments for the week ending November 17th totaled 1.1mmt, with 79% of the week’s shipments loaded for China. Last weeks shipments were at 1.5mmt and year to date totals stand at 9.6mmt. 1st quarter exports are estimated at a 3-year low of 11mmt.

Winnipeg canola has largely followed the whims of neighboring US soybeans, however solid end-user demand continues to buy on the lows, limiting the declines. The forecasts are pointing to relatively tight canola ending stocks, which is keeping exporters and domestic crushers buying. Canadian canola crushers continue to set processing records as capacity continues to be expanded across western Canada. The latest monthly data from STATS Canada reveals crushers handled 589kt of canola in October, +6.9% from last year. Monthly crush volume has risen above year earlier levels for the 22nd consecutive month! So although it was a record crop across the Prairies this year, carryover wouldn’t as significant due to strong international demand and domestic crushers.

With the spring dryness cutting EU rapeseed yields this year, 90% of all Australian canola has been finding a home in Western Europe. While traditional importers Pakistan and Japan have taken only a cargo between them the marketing year just finished, preferring Canadian origin. So more of an influence has been Matiff rapeseed futures.

So will prices stabile around $500, probably not and growers who didn’t make forward sales earlier in the year or two weeks ago, will be need to have at least some sales made ASAP. And although outside macro related has heavily influenced the oilseed complex, short term fundamentals are not friendly either.

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