The Good: The macro based trade that pushed canola lower on Monday, was not responsible for the drop in that market today. It was a self inflicted wound (see The Ugly) as the macro trade was put to rest today. The Dow Jones Industrial average has managed to claw its way back over the past two trading sessions to 34,794 points as the macro based trade has disappeared as quickly as it emerged. The all time high in the Dow is 35,091 points and it appears that the macro trade will emerge whenever the market gets close to this value. This means that the market will have random bouts with volatility.
The Bad: The spring wheat market was down again today, while winter wheat futures were up. This smacks of spread trading with the markets trying to move the premium back closer to the US$2.00 per bushel level. The September spring wheat futures were down 18.25 cents per bushel, while HRW September futures were up 8.5 cents per bushel. These moves have narrowed the spread to US$2.29 per bushel. Spring wheat futures were not helped by the monthly Outlook for Canadian Principal Field Crops, which showed an increase in wheat ex durum production from the June estimate. Definitely we will have to wait until the August 30th Statistics Canada report to get a glimpse at Canadian production potential.
The Ugly: Canadian market participants know the story with the Outlook for Canadian Principal Field Crops from Agriculture Canada. The production estimates are not usually changed too much in advance of the official Statistics Canada estimates. This is the same situation that the USDA finds itself in prior to the official NASS forecasts. The problem is that most foreign traders don’t understand the distinction and between the official survey estimate and the numbers plugged into the S&D tables. A canola crop of 19.885 millions tonnes from a government agency is enough to send the market lower. That us wheat happened today as the canola market went from topping action in the past six trading sessions to an outright selloff. November canola futures closed the day at C$879.90 per tonne by what could only be described an estimate that is not even close to possible this year.