The Good: ICE canola had a rough week, as the March contract closed down C$51.50 per tonne on the week. Sure South American weather forecasts are calling for some drought relief in southern Brazil and Argentina next week. The problem with the canola situation in Western Canada is that the supplies are being used at an alarming clip. The market seems satisfied that the canola market is rationing demand, but crush numbers remains strong and exports are running ahead of the pace needed to meet current export targets. At the same time, the futures market is pricing canola at levels that are relatively underpriced when compared with European values. The spread between nearby European rapeseed contracts and ICE canola widened to C$122.74 per tonne today. When the spread between the two canola contracts moves above the C$100 per tonne level, ICE canola becomes extremely undervalued.
The Bad: Durum exports dropped to 19,600 tonnes as the impact of the seaway closing is now being felt. Exports last week were limited to 10,900 tonnes in Vancouver and the remainder was shipped by rail to the U.S. from Prairie locations. No exports were reported from St Lawrence river locations and exports have tailed off over the past few weeks. The drop off in durum exports was expected with the closure of the seaway, but 462,100 tonnes remains instore in the St Lawrence and Vancouver has stocks of 62,200 tonnes. This should keep the durum exports in the coming weeks fluid.
The Ugly: The true ugly market of this week, and there were plenty of contenders, was the spring wheat market. Nearby spring wheat futures dropped like a stone this week s funds continue to sell their long position. The funds went short 3,733 contracts in the week ending on January 11th and have continued to sell through the past few days. The weekly chart is bearish with the nearby spring wheat contract dropping by more than US$ 1.50 per bushel over the past three weeks. The value of the March contract is back to the levels seen in September, despite the fact that spring wheat supplies are going to be very tight at the end of the crop year. Wheat markets have been ignoring the potential for Black Sea wheat supplies, if Russia does invade Ukraine. There is no weather or geopolitical risk premium currently in the wheat market.