Harvest operations are picking up steam across Western Canada, and the increasing likelihood that the country will end up with a record-large canola crop this year kept the path of least resistance to the downside in the ICE Futures Canada market.
The most active November contract lost over $20 per tonne on the week to settle below the psychological $500-per-tonne level. That chart point will likely now be seen as nearby resistance, with just about everything in the market indicating that canola has more room to the downside.
Harvest operations are officially underway across all three Prairie provinces and will only be picking up steam over the next few weeks. With weather conditions looking generally favourable, the likelihood of a record-large crop continues to edge closer to reality, while concerns over frost damage slowly fade.
Carry-out from the 2012-13 crop year was pegged at 608,000 tonnes by Statistics Canada, which would mark the tightest ending stocks since 2004. However, when that small carry-over is combined with the 15-million- to 16-million-tonne crop on which most market participants are banking, suddenly the industry has the largest beginning canola supplies to deal with ever.
The larger supplies don’t necessarily mean a sharp drop in prices, as demand remains strong for canola. The domestic crush sector in particular has been forced by the tighter availability over the past year to run at a reduced capacity. According to the latest Canadian Oilseed Processors Association (COPA) weekly stats, crushers are currently only running at about 50 per cent capacity. Their margins remain favourable, which means they should be looking to increase their usage once the supplies are there.
Corn, wheat soften
In the U.S., the most active soybean contracts were all higher during the week, while corn and wheat were a little softer.
Persistent hot and dry Midwestern weather conditions have led to concerns over yield reductions in the U.S. soybean crop, and the uncertainty of the production situation has underpinned beans lately.
Soybeans are a bit on edge at this time, with the broader price direction largely dependent on how the crop actually turns out. If production is downgraded, there could be more room to the upside. However, if the harvest gets started and production beats expectations, prices could easily back away from their nearby highs.
The November soybean contract faces stiff resistance around US$14 per bushel, while a chart gap between US$13.28 and $13.48 remains to be filled.
Corn, meanwhile, is further along in its development and early harvest reports from the southern Corn Belt were helping ease the concerns over possible yield losses in the crop.
For wheat, all three U.S. futures contracts moved lower during the week, with the largest losses seen in Minneapolis spring wheat. Some weakness there was tied to expectations for a large Canadian wheat crop. Farmers in the northern-tier states were also moving forward with the spring wheat harvest, with better-than-expected yields being reported.
However, protein levels will be a factor to watch in both Canada and the U.S., with early reports pointing to lower-than-average protein levels on both sides of the border.