How long can canola's
rally go on?
July futures in the last session managed a fifth successive positive
close, in a rally in which it has gained 6.0%.
The recovery in canola futures to their best close in the
last session in six months (on a nearest-but-one contract basis) has been
fuelled by concerns over sowings delays in Canada, the major grower of the rapeseed
Much of the Prairies, Canada's main growing region, is suffering
from the same damp and cold conditions holding back corn sowings in the US
northern Midwest states such as Minnesota, Michigan and North Dakota.
"Wet and cool field conditions currently exist in the
Canadian prairies," said Gail Martell at Martell Crop Projections, adding that a
"rash of heavy rain showers in late April turned fields wet."
Indeed, "up to 100mm of rain developed in a large segment"
of the main growing province of Saskatchewan, which on average receives
15mm-18mm during April.
'Reluctance to sell'
"Cold and wet weather in Canada is keeping producers out of
the fields," said Sterling Smith at Citigroup, adding that "this is adding to
producers' reluctance to sell".
A weaker Canadian
dollar has also fuelled the recovery in canola, which has now bounced 23%
from a low three months ago (again on a nearest-but-one contract basis).
And technical pointers have proven more positive too,
encouraging some fund buying.
Mr Smith noted that strength in the last session "allowed canola
to break through a nearby resistance area" on the charts, with the July
contract also closing above its 200-day moving average for the first time in
'Expected to warm up'
And the ascent continued in early deals on Wednesday, when
the July contract broke through the psychologically important Can$500-a-tonne
mark to stand at $Can$501.00 a tonne in Winnipeg as of (10:30 UK time 04:00 Chicago
time), up 0.8%.
But will improve planting conditions snuff out the recovery?
Ms Martell said that "Saskatchewan is expected to warm up
this week, permitting fieldwork.
"The jet stream is expected to build up a warm ridge of high
pressure over western North America influencing the weather in Alberta and
Saskatchewan," she said.
"This would be ideal for warming and drying fields, and
Elsewhere among oilseeds, palm oil extended its recovery in Kuala Lumpur, adding 0.6% to 2,606
ringgit a tonne, continuing to feel a glow from the strong Malaysian export data
for early May released earlier in the week.
And, for soybean
investors, attention turned to China's auction from state reserves, of 300,000
tonnes, the first in a programme expected to release 3m tonnes.
On Tuesday, the announcement of a higher-than-expected
auction floor price, of 3,920 yuan a tonne, was widely credited for offering
support to soybean prices on both China's Dalian exchange and the Chicago Board
So how would markets take the actual result of the auction
on Wednesday, which showed that 92.1% of the soybeans were sold, at an average
price of 4,322 yuan a tonne?
On the Dalian, the result was taken as unequivocally bullish,
with soybeans for September settling up 1.7% at 4,497 yuan a tonne.
On Chicago, the reaction was more mixed. The high auction
sale price, equivalent to $694 a tonne, or more than $18.80 a bushel, bodes
well for the competitiveness of US supplies.
But if Chinese buyers are filling their boots at domestic
auctions, will they want to buy abroad too?
It may have helped ease uncertainties that Oil World raised
by 200,000 tonnes to 70.7m tonnes its forecast for Chinese soybean imports in
2013-14, a rise of 18% year on year.
"World import demand is much higher than expected," Oil
World said, flagging data showing buy-ins of 6.5m tonnes in April, and
foreseeing potential imports of 7.5m tonnes this month.
"Despite numerous reports about Chinese cancellations during
the past couple of weeks, actual shipments of soybeans to China were still
unusually large from South America."
Soybeans for July stood higher, but by a modest 0.2% at
$14.86 ½ a bushel.
Still, that was more than could be managed by wheat futures, for which all the main
US contracts eased in line, having displayed contrary moves in the last
Minneapolis hard red spring wheat futures eased 0.2% to
$7.93 ¼ a bushel for July delivery, with the improved Canadian sowing
conditions hardly boding well for prices south of the border.
Kansas City hard red winter wheat, the type under threat
from US southern Plains drought, fell 0.2% to $8.23 a bushel for July, with no
sense of the poor conditions improving, or accelerating their decline.
"The major hard red winter wheat growing areas are forecast
to be mostly dry near term," CHS Hedging said, meaning more of the same.
'Setting up for a
And Chicago soft red winter wheat, the world benchmark, fell
0.3% to $7.07 ¼ a bushel for July delivery, on course for a sixth successive
day of decline for the first time in 2014.
Technically, Brian Henry at Benson Quinn Commodities noted
that "short term and daily momentum studies aren't offering any support at the
current levels, which has been the theme of the last three sessions.
"Weekly momentum studies are at a minimum flattening out and
starting to turn lower.
"It appears the wheat market is setting up for a better
correction, but it's going to take an effort by the funds to liquidate length."
'States with most
Corn took the
opportunity to close a little of its discount, adding 0.3% to $5.04 a bushel
for July delivery, with the concerns over northern Plains sowings continuing to
provide some support.
"Minnesota, North Dakota, Wisconsin, and Michigan are states
with most concern and will need drier/warmer weather within the next several
weeks to keep all intended corn acres," CHS Hedging said.
The four states, responsible for some 20% of US corn
sowings, are well behind on plantings, with North Dakota growers only 3%
And there are still signs of demand at current levels to
give bulls some comfort, with South Korea on Tuesday buying 126,000 tonnes of
US corn, for 2013-14, and a further 120,000 tonnes optional origin, while
Taiwan bought 60,000 tonnes from Brazil a little cheaper.
Among soft commodities, raw
sugar futures extended gains of the last session amid a flurry of somewhat
bullish news at the start of New York sugar week.
ICE's July contract added 0.8% to 17.94 cents a pound.
Russian raw sugar imports rose to 350,800 tonnes in the first
three months of 2014 from 193,800 tonnes, customs data showed.
But arabica coffee
eased 0.1% to 186.80 cents a pound, undermined by dryness in Brazil now being
viewed as helpful to farmers, in speeding the harvest.
"The current dry weather, which is expected to last for
another 5-7 days, is beneficial to harvest efforts and it is preventing further
harm to the crop," Citigroup's Sterling Smith said.