ICE weekly outlook: Canola due for corrective bounce

CNS Canada –– ICE Futures Canada canola contracts were slightly weaker during the week ended Wednesday, managing to come off the fresh lows made on Aug. 22 amid oversold price sentiment.

Downward pressure came from weakness in Chicago soybean and soyoil futures, as weather in the U.S. Midwest continues to benefit an expected record-large crop.

But technical based buying, as the canola market is oversold, helped prices recover some of the losses, and should be supportive going forward, said Errol Anderson of ProMarket Communications in Calgary.

“I’m viewing the November contract at C$420 per tonne as kind of the line in the sand right now,” he said. “On the bounce, up into the $435 to $440 would sort of be the top of the rainbow.”

The one weakness for canola in the near term could be that soybean prices probably haven’t bottomed yet, and canola is likely to be dragged down by the U.S. market, Anderson said.

“But if the beans break another US25 to 30 cents a bushel, I think then the beans would be viewed as oversold,” he added.

Traders will continue to watch the weather in the U.S. and Western Canada leading up to harvest, with any damage done by recent cold, wet weather in parts of Manitoba and Saskatchewan likely to be priced into the market.

Once harvest is underway, canola prices will be probably be at their worst, Anderson said, but things will start to improve for farmers in the cash market later in the fall.

“The weakness of the cash bids right now is the basis levels,” he said. “But in October onward, I think growers can expect and look forward to better basis levels.”

How big the 2014-15 Canadian canola crop ends up being will also be a factor in where canola prices move going forward. On Aug. 21, Statistics Canada pegged production at 13.91 million tonnes, though Anderson believes that their estimate is too low.

The next production estimates from Statistics Canada won’t be released until Oct. 3.

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

 

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