ICE weekly outlook: Canola sinks below $500

(Dave Bedard photo)

CNS Canada — As canola heads towards harvest some bearish headwinds have popped up that are keeping the front-month contract below the $500 mark.

“There’s been a big reversal since the (U.S. Department of Agriculture) report,” said Keith Ferley of RBC Dominion Securities in Winnipeg.

USDA late last week projected the U.S. soybean crop at 4.4. billion bushels, which was much higher than most analysts expected. The report set in motion a bearish cascade of futures in the oilseed world that caught canola in its wake.

The dominant November canola contract, which had been in the middle of a rally, slipped below the $500 mark as a result.

Long liquidation is one of the main factors behind the plunge, Ferley said. The other is the improving weather situation in U.S. soybean-growing country.

As Canada enters negotiations with the U.S. over the North American Free Trade Agreement, Ferley wonders what will happen to the dollar.

“Who knows where the dollar is going to go, I don’t have a good feel,” he said.

The loonie on Friday dipped below the US78.5 cent mark, but by late afternoon Wednesday it was trading well above US79 cents.

Early harvest returns have begun to roll in and Ferley said it’s difficult to pinpoint what the overall yields will be.

“Some guys in southern Alberta are talking 15 bu./ac. while some guys in southern Manitoba are talking 50; good luck giving me an average of where you think the crop size will be,” he said.

Crush margins are at their lowest levels since last summer while many farmers are waiting for better prices before selling supplies.

Ferley says the next level of support for canola is around $486 a tonne.

“The chart isn’t looking great at the moment,” he noted, adding the next level below that was probably at $470.

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

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