CNS Canada — ICE Futures Canada canola contracts moved lower during the week ended Wednesday, feeling the pressure from a weakening U.S. soybean market.
And there’s further downside possible for both markets, as “the bias in the whole oilseed complex still looks lower,” said Ken Ball, analyst with PI Financial in Winnipeg.
“Beans seem to be on a run to US$9 a bushel here, and the only way canola will not get pulled down with them to some degree is if there is some damage to the crop or, as harvest does manage to advance in the next few weeks, yield reports start coming in poorly,” he added.
There are forecasts calling for cool weather and frost in some agricultural regions of Western Canada on Sept. 10 and 11, but traders seem to be betting it won’t do much damage to canola crops.
Canola prospects are also looking better than earlier expectations, Ball said, adding that production will likely exceed Statistics Canada’s prediction of 13.9 million tonnes made earlier this summer.
But even if the crop avoids frost damage and is bigger than first expected, canola prices aren’t necessarily going to drop as far as soybeans do.
“It’s possible you’re going to have US$9 beans and not have canola go a lot lower, especially if we are getting some shifting in the oil/meal relationship down south,” Ball said. “Canola might not go below C$400 per tonne even though beans might go quite a bit lower.”
Ball wouldn’t be surprised if canola does drop below the C$400 per tonne mark, but doesn’t expect it will last long or dip much under that level.
“Even if the crop is a lot better than the last StatsCan report, (supplies) are still going to pencil out fairly tight assuming demand holds up. And at the moment there’s no reason to think it won’t hold up reasonably well, so canola should be trading in its final bottom C$10 or $20 now,” he added.
— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.