The Good: July canola futures locked up limit today with the contract closing at a new high of C$894 per tonne. The target for the July contract will be the high for the May contract, which is C$933.90 per tonne. The canola market increase drove the board crush margin down to C$53.96 per tonne, which was down over C$17 per tonne from yesterday’s close. The new crop November contract was up by C$20.40 per tonne during today’s session and crush margins for new crop contracts remain attractive. The oilseed markets remain driven by the strong corn market, which is pulling oilseeds along for the ride.
The Bad: Spring wheat futures closed up nine to ten cents per bushel, but that pace did not keep up with the rise in in HRW futures prices. The July HRW contract closed the session at C$6.9925 per bushel, which failed to keep pace with the increase in corn prices. The spread between new crop (July) HRW futures and corn is 2.5 cents per bushel. The HRW crop is in decent shape and yields should come in close to average, which is bearish. The only fly in the ointment is that a two cent premium to corn is a strong signal for feeders to buy wheat and feed it. During the 2012-13 crop year HRW feeding was estimated by USDA at 171 million bushels. USDA will have to use a stronger feed use for the HRW balance sheet to reflect the strong incentive to feed wheat.
The Ugly: We could have put up the precipitation forecast for Brazil over the past month and it would have looked much like the map below. The rally in the corn market has been predicated on the tight U.S. supplies this year and the drop in the safrinha crop. Since the crop was planted in February and March, the moisture received in the main growing areas has been much below normal. This is compounding the problem of late planting as soil moisture conditions have deteriorated going into the dry period of May and June. Until this region receives some beneficial amounts of precipitation, then the corn market will continue to rally.