Canola bearish in near term at ICE

(Resource News International) — Canola futures at ICE Futures Canada in Winnipeg finished the week ended July 29 sharply lower, pressured down by weakness in soyoil and European rapeseed, the firm Canadian dollar and bearish technical signals.

Prices have fallen to the lowest level of 2009, with the improving crop outlook also weighing on the market, traders said. They indicated that commodity fund selling was evident, with funds beginning a short position in the November contract after that contract penetrated support at $400 on Wednesday. Trading volumes were thin, with many participants sidelined by the canola crop uncertainty caused by weather problems early in the growing season.

The near-term outlook for canola is lower, said Mike Jubinville, an analyst with ProFarmer Canada in Winnipeg. “The weight of the favourable crop outlook for other oilseed and grain crops will pressure canola down, even though the crop is not in as good (a) shape,” he said.

Contributing to the weakness, he noted, will be an improvement in the canola crop in recent weeks, although the crop will likely be below-average.

Jubinville predicted November canola could drop as low as $380, but felt at that level it would attract in good demand, which will begin a pre-harvest rally.

“I could be more bearish on canola if this big decline had been done with large volumes, but the small volumes suggest that it is not a convincing bearish trend.”

Frost fears

Longer term, he was optimistic about the canola outlook, noting that demand will outstrip production in 2009-10 and that ending stocks will be drawn down to relatively tight levels.

“I know that everyone has lowered their forecast for Chinese canola buying, but I am not convinced that they will not a considerable force in this (canola) market yet.”

Jubinville also noted that potential for a frost is “at the back of everyone’s mind.”

This year’s below-normal summer temperatures have everyone concerned about the canola crop as it is two to three weeks behind normal development, which would make it vulnerable to a seasonal frost and would make it very vulnerable to an early frost, he noted.

“If we have a frost in mid-August, as many are predicting, then all bets are off and we could see a sizeable rally in this market, ” he said.

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