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Morning markets: charts, US dryness send wheat back above $6

More adventurous investors may be watching the canola market, which could offer the brave potential for large profits, if they can get the timing right.

The price of Winnipeg's March contract fell to Can$392.80 a tonne in the last session, the lowest for a spot contract since June 2010, and well below highs last summer above Can$650 a tonne.

Already this year Winnipeg canola has lost some 10%.

'Largest discount on record'

As well it may, of course, given the huge stocks of the rapeseed variant left in Canada of 12.6m tonnes at the end of 2013, up 55% year on year, swollen by a record harvest.

However, the fall is noteworthy on two scores, the first being the extent to which canola's discount to rival oilseed soybeans has increased.

"The discount of Canadian canola to US soybeans, at negative $135 a tonne, is now the largest on record and contrasts sharply to the 10-year average positive $38 a tonne," Luke Mathews at Commonwealth Bank of Australia said.

The second is the warmer weather in North America which is freeing-up logistics, and so easing up that pressure on supplies.

Logistics factor

Chicago futures in oats, which have benefited from transport snarl-ups, given that the US relies on Canadian imports for nearly half its supplies, have performed particularly poorly this week, down 5.9% as of the last session's close.

(That said they did bounce on Friday, up 1.7% at $4.17 a bushel for March as of 09:40 UK time, 03:40 Chicago time.)

Could, local, canola prices rise, potentially even closing the gap with soybeans, as Canada's return to freed-up logistics boosts demand from farmers?

Another twist could be the impact on foreign prices of smoother Canadian logistics.

Paris rapeseed has risen by 2.5% in 2014, in local currency terms, to close the last session at E378.25 a tonne, but may now face greater competition.

Palm springs

Furthermore palm oil has been performing well too, an interesting indicator for canola/rapeseed, which is an oil-heavy oilseed, more so than soybeans which produce more of the meal used in livestock feed.

Palm oil for April set a two-month high of 2,688 ringgit a tonne in Kuala Lumpur in early deals, before easing back to 2,666 ringgit a tonne, a gain of 0.4% on the day, and supported by idea of demand, including for biofuels.

Both Indonesia and Malaysia, the top producers, are boosting mandated levels of biodiesel, derived from vegetable oils, in forecourt diesel.  As an extra boost, oil prices have been stronger this month too.

Back to canola, and this was trading 0.6% higher at Can$396.50 a tonne in Winnipeg, looking for its first winning session in six.

'Not many natural sellers'

And, of course, palm oil is getting a lift from soybeans, the source of soyoil.

In Chicago, soybeans certainly did their best to keep ahead of the game on Friday, maintaining their support on ideas that, with US supplies still thin, demand may need more rationing (as pointed out earlier this week).

Particular attention is being paid to importers, and when and to what extent the onset of a Brazilian harvest producing "extraordinary yields" according to the US Department of Agriculture will prompt Chinese buyers (the biggest) to cancel existing orders for US supplies and switch to South America.

"We don't have many natural sellers in the market," one US broker said.

"There are not many soybeans stored on-farm and we need to see export sale cancellations in order to fit the USDA's projections."

'Friendly number'

While a big cancellation did come through on Wednesday, more significant USDA data on Thursday showed China staying a net buyer.

More than 1m tonnes of soybeans headed for China too last week, reducing the potential for cancellations assuming, of course, that genetically-modified crop taintings do not prompt a spree of rejections, as with corn.

"Weekly soybean export sales were below expectations, but as long as it was a positive number and didn't include any Chinese cancellations, it was friendly," CHS Hedging said.

The broker added that "assuming a normal amount of soybean sales will be rolled into the next crop year, it's estimated we need to have 35m-40m bushels of net cancellations in the second half of the marketing year to not go over the current USDA export forecast.

"There has never been a year when there were net cancellations in the second half of the marketing year."

Port problems?

Furthermore, the wetter Brazilian weather, while resolving dryness in some areas, poses a threat to the progress of harvest and to shipments.

"A wetter Brazilian port outlook may slow the record-setting early February loading pace," said Richard Feltes at Chicago broker RJ O'Brien.

Soybeans for March added 0.7% to a five-month high of $13.53 a bushel.

The oilseed is also gaining technical kudos for having passed through the psychologically important $13.50-a-bushel mark.

Chart supports

Wheat gained too, by 1.0% to $6.01 a bushel for March delivery, making its own technical landmark in crossing $6.00 a bushel, and posting its highest levels since early January.

Signally, the contract also bust through its 50-day moving average, above which it has not closed since October.

And there are technical boosts in the other US markets too, with Minneapolis spring wheat in the last session "posting an outside higher day, technically supportive", CHS said.

Minneapolis wheat or March gained 0.4% to $6.65 a bushel, a two-month high for a spot contract.

'Multi-year drought'

While much of wheat's rise is technical, there is fundamental cause too, with dryness in part of the US winter wheat area, and particularly in the southern Plains hard red winter wheat belt.

"Some forecasts are calling for dry weather over the next 30 days," Brian Henry at Benson Quinn Commodities said.

"The relatively tight old crop carryout and smaller-than-expected acreage leaves a smaller than usual margin for error for this year's crop.

"Whether or not the western half of the plains can break out of a multi-year drought could be the key feature of the wheat trade this spring."

Kansas City-traded hard red winter wheat for March was up 0.7% at $6.77 a bushel.

As for corn, it maintained its sideways plod, adding all of 0.2% to $4.41 a bushel, supported by ideas of string demand, but with hefty supplies to sell preventing upward progress.

Evening markets: soybean prices bounce on export data relief
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