ICE weekly: Canola strength may be limited

(Dave Bedard photo)

CNS Canada — ICE Futures Canada canola contracts were mixed during the week ended Wednesday, with the most active front months posting gains and losses in the more deferred positions.

While there is still more room to the upside, weakness in CBOT soybeans could spill over to pull the Canadian futures down.

The open interest in canola has risen by about 20,000 contracts during the first two weeks of 2015, with much of that activity tied to fund buying on the one side and producer selling on the other, according to market analyst Wayne Palmer of Agri-Trend Marketing in Winnipeg.

The weakness in the Canadian dollar is currently providing some relative strength for canola, making the commodity more attractive to end-users pricing in U.S. dollars, said Palmer.

The relatively stable tone in the canola market came despite losses of nearly 50 cents per bushel in CBOT soybeans during the week, with the March contract settling just above US$10 per bushel.

March canola, meanwhile, was up by C$4.80, to close Wednesday at $454 per tonne. That was the highest close for the contract since July.

“People are scratching their heads, wondering when canola will catch up with beans again,” said Palmer. Canola will eventually move back in line with soybeans, he added, but “it’s all timing.”

A move below US$10 per bushel in CBOT soybeans would likely be enough of a catalyst to pull canola down as well, said Palmer. Farmers are also still sitting on unsold canola, which is overhanging the market. They can only store the crop so long, as they will eventually need to make room for 2015 production.

However, right now, fund traders are still pushing values higher, and Palmer expected that could continue until the front month hits the C$460-$465 area. At those prices, cash bids would work out to C$10.50 per bushel, which would bring in more farmer selling and alleviate the squeeze in the market.

The futures will do all of the work getting cash prices up to C$10.50, as basis levels are widening, said Palmer. The futures were inflated and magnified by the fund activity, he added, with nothing fundamental really behind the strength.

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

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