PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 10:05 GMT, Wednesday, 14th May 2014, by Mike Verdin
Morning markets: canola futures extend rally. Can it last?

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 variant.

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 eight months.

'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 advancing planting."

China auction

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 of Trade.

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?

'Unusually large'

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 a bushel.

In step

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 session.

Minneapolis hard red spring wheat futures eased 0.2% to $7.93 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 better correction'

And Chicago soft red winter wheat, the world benchmark, fell 0.3% to $7.07 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 concern'

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% finished.

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.

Strong sugar

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.       

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