ICE weekly outlook: Canola rebounds on U.S. futures support

ICE January 2021 canola (candlesticks) with 20-, 50- and 100-day moving averages plus CBOT January 2021 soybeans (blue line). (Barchart)

MarketsFarm — After a week of steady losses canola prices surged back Wednesday, catching ample spillover support from the Chicago Board of Trade (CBOT).

That support in turn was derived from two new reports from the U.S. Department of Agriculture (USDA).

The report on grain stocks as of Sept. 1 noted declines in wheat, corn and especially soybeans compared to those a year ago. The small grains summary noted the total amount of wheat grown this year in the U.S. was also down compared to 2019.

Together, the USDA reports generated double-digit gains for CBOT’s three main crop commodities.

Prior to Wednesday, canola was seen as overbought, according to analyst Wayne Palmer of Exceed Grain in Winnipeg.

“Being overbought in the middle of harvest, in my 40-plus years in the grain trade I have never seen this before,” Palmer said, noting canola prices rose dramatically before they tumbled.

“But you can only take it so far on the technical aspect. Funds put on a record-long position and their threshold is so much that they can’t keep on buying forever. They can only have a certain percentage of the open interest.”

Declines in Malaysian palm oil precipitated those in soyoil and canola, he said.

“Canola had no place but to go down,” he said, adding there was a long liquidation plus farmer selling, combining everything into “a perfect storm.”

Nevertheless, Palmer believes canola is still well priced, with another rally quite possible — and given the amount prices dropped, that’s what happened on Wednesday.

One other factor to keep an eye on, he said, is the Canadian dollar. After slipping back from around 76 U.S. cents, the loonie fell to around 74.5.

“The Canadian dollar can go anywhere right now with the U.S. election around the corner. Who knows how crazy the stock markets and the U.S. dollar are going to get?” he said.

Until this week, the U.S. Dollar Index dipped under 93 points, which signaled the greenback’s weakness against other major world currencies. That in turn propped up the loonie, but that strength dissipated as the U.S. dollar pushed above 94 points.

Following Tuesday evening’s presidential debate, which proved to be a verbal donnybrook, the U.S. dollar eased, allowing the loonie to hover around 75 cents.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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