Numbers Look Bullish, but Not Really

Published on: 17:34PM Jun 15, 2010
Canada catastrophe—yes and no. Canada’s delayed canola planting has captured the imaginations of traders recently, and no doubt will have an effect on the canola market in that country, says Bill Biedermann of Allendale. His math suggests it is possible to pencil in a 2 to 3 million-metric-ton loss, setting production back to 2004 levels. “Canada would need to ration usage or use up all stocks.”
However, world canola stocks are currently near record levels at 5.6 mmt and will shrink to near 3 mmt, the levels of 2007/08, which prices traded from $353 to $754/ton. Today’s price of $416 is in that range.
This is a drop in the bucket however: Pegged at 440.22 mmt, world oilseed production is near the 440.88 record and end stocks are projected at a record 77.52 mmt. “Even if we cut world stocks back a full 4 mmt, we would still have the third highest oilseed stocks on hand,” says Biedermann.
If rains continue into next week, however, 400,000 acres in Ohio and 540,000 in Missouri may enroll in prevented planting programs, he points out. “That could reduce U.S. production by 40 million bushels and stocks may drop 1 million bushels, to 320 million,” he says. “That may sound bullish, but it is still 72% more stocks than last year and the world will be tied with the world record for soybean stocks.
“All in all, we believe there already is an initial risk premium in the market. The seasonal trend is for a rally, but unless supplies are affected by later weather or a world economic recovery is perceived, strength into $9.60 to $9.80 will look like a selling opportunity as fall prices come in at $8 or less.”