Canada Markets

The U.S. soybean harvest is wrapping up, with today's USDA Crop Progress report indicating harvest is now 93% complete. The USDA's export inspection report today suggested weekly soybean exports to be well ahead of the pace to meet the USDA's projection of 1.265 billion bushels. Year-to-date inspections are 41% ahead of the pace needed to meet the annual target. To date, the market has been characterized by solid demand from the export and domestic crush sectors and supported by concerns about tight supplies.

In his recent blog (http://bit.ly/…), DTN Senior Grain Analyst Darin Newsom indicated that seasonal tendencies for cash soybeans lead to a bottoming in the first week of October at 82% of the average annual price and trend higher until the first week of July at 115% of the average annual price, for a total gain of 33%. We are certainly in the early stages of a period of seasonal strength.

Any strength in the soybean market will spill over into the canola trade. Canola seasonal trends during the past five years also indicate a bottoming in the first week of October at around 94% of the annual average, then an upward trend to its first peak in late February/early March at close to 105% of the annual average. The canola market then tends to back off into March while prices then tend to strengthen again to the annual high in the second week of July, at close to 106% of the annual price.

Given recent market moves, one would question whether following seasonal trends could provide insight to this year's markets. In his farmdocDaily column titled Which Way for Soybean Prices, University of Illinois economist Darrel Good suggests that even though both exports and domestic crush remain on an unsustainable pace, two concerns hanging over the market have kept prices under pressure:

-- Uncertainty about 2012 production, with expectations that the USDA could once again increase the crop size, and

-- Possibilities of record production to come from South America next spring. (See DTN South America Correspondent Alastair Stewart's blog http://bit.ly/… for more on South America).

Good goes on to say that even though bean prices are inverted, deferred contracts are still trading at premiums to the past two years and could possibly correct even lower if South American crops achieve the potential that so many are currently expecting. Friday's USDA report will perhaps clarify the government's most recent work with respect to the size of the 2012 crop in the U.S. as well as South America. Beyond that, markets will continue to react to news from South America as it becomes available.

As seen on the attached weekly chart for January canola, the contract broke through the 38.2% retracement of its longer-term uptrend which began with a $483.60/mt low the week of November 21, 2011 to a weekly high of $657.50/mt the week of Sept 10. The next few days may indicate if the market can come back and remain above the support of this retracement level or if it will continue to trend lower. Support may exist at the $580.70 low reached the week of October 1 and failing that, may retrace to the 50% retracement level of $570.60/mt.

All the while, seed may remain in strong hands and look for the basis levels to do the work to entice seed into the system.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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