Canola rangebound, watching weather and soybeans

ICE Futures Canada canola contracts were lower during the week ending Wednesday, as relatively favourable Canadian crop conditions and a combination of bearish outside market influences weighed on values.

Prices neared the low end of their well established trading range and found some support, as activity slowed down ahead of the U.S. Independence Day holiday.

Looking ahead, canola will take some direction from what happens in the US soy market when activity picks up following the July 4 holiday, but will also take into account its own fundamentals, said analyst Mike Jubinville of ProFarmer Canada in Winnipeg.

About 20 per cent of acres on the Canadian Prairies are showing issues such as excessive moisture, “but 80 per cent of the crop looks good,” said Jubinville.

With the majority of the canola crop in relatively good shape, he expected the path of least resistance could be lower.

However, given the lateness of the crop, the flowering period is happening deeper into July this year. Canola doesn’t like too much heat during the flowering period, said Jubinville, noting that a heat blast in July hurt yields in 2012.

From a technical standpoint, the most-active November canola contract remains in the middle of a broad $530-$575 per tonne trading range, said Jubinville.

Large speculators were in the process of moving into a net short position in canola, after holding a large long position in early June, he said. That speculative money also has the potential to move values, depending on where the technical signals point.

CBOT soybeans, corn

Soybean and corn futures at the Chicago Board of Trade were mixed during the week ending Wednesday. Tight old-crop supplies boosted the front months ahead of first deliveries, while the more actively traded new-crop contracts moved lower as improving U.S. weather conditions and a bearish U.S. Department of Agriculture acreage report weighed on values.

Corn tested fresh contract lows, while soybeans were also near the bottom of their range.

“Monday (July 8) will be the day that determines the direction of the grain markets for the next month,” said Jubinville. Weather and macroeconomic issues at that point could set the stage for the movement in the futures, he said.

While U.S. Independence Day is known for its fireworks displays, July 8 “is when the fireworks will be” as far as the futures are concerned, said Jubinville.

“Typically, almost every year after the U.S. Independence Day holiday, the market either accelerates the trend going into the holiday, or pulls a dramatic reversal. Ahead of the holiday weekend, there are more bearish issues than bullish, “but this is the unpredictable time right now,” said Jubinville.

The most bullish thing that could happen would be forecasts pointing to very hot and dry weather conditions across the U.S. Midwest through July, he said.

Weather conditions for crop development generally look favourable across the Midwest currently, but a weather scare can come forward any given time during the growing season.

With the path of least resistance pointing lower in corn and soybeans, Jubinville said any weather scares would represent a selling opportunity.

— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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