ICE weekly outlook: Bearish funds keep canola pointed lower

ICE July 2019 canola (candlestick) with CBOT July 2010 soybeans (line) for comparison. (Barchart)

MarketsFarm — ICE Futures canola prices fell to their lowest levels since 2014 during the week ended Wednesday, as bearish technical signals and a lack of progress on trade relations with China weighed on values.

While a short-covering correction is possible, the underlying fundamentals also remain bearish.

Speculators adding to their large net short positions were behind much of the selling pressure in canola, with “funds pressuring the market to see how far it can go,” according to Ken Ball of PI Financial in Winnipeg.

The heavy fund selling was unusual for this time of year, he said, when attention in the markets typically turns to spring seeding weather.

“The spec traders have all of the commercial buyers just sitting back and watching,” said Ball. “We need a spark, or eventually prices will get so low that the spec funds will start to cover their shorts.”

While there are some weather issues slowing seeding operations in parts of Western Canada, Ball said nothing was causing much concern for market participants. Even though seeding is slow, Ball added the moisture will be good for the crops in the long run.

Activity in Chicago Board of Trade soybeans could provide some direction for canola, but Ball noted the soybean market was also bearish.

Soybeans also touched contract lows during the week, with a move to US$8 per bushel in the front months a possibility. If that were to happen, he expected canola could test the C$400 per tonne level.

The most active July canola contract settled Wednesday at C$436.40 per tonne. Ball placed nearby support at a swing target about $10 per tonne lower.

— Phil Franz-Warkentin writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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