MarketsFarm — There very likely won’t be any resurgence in canola that would see old-crop futures exceed $1,000 per tonne in the near future, according to analyst Errol Anderson of ProMarket Communications in Calgary.
In recent days, canola has been taking a series of hard hits, which have pulled the January and March contracts under $1,000.
“The crushers are now booked out to February-March. So when they started to sell, they also widened their basis levels,” he said. “When they do that, it’s a signal that they don’t have the sales.”
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During trading Monday, several of the active months experienced drops of $50 per tonne or more. At the close, the January retreated about $40 and the March lost around $38.
“When you see the futures tumble and the basis levels drop, that suggests we have seen a major peak,” Anderson added, suggesting the March could climb to $980 per tonne – if any news was bullish enough. But the analyst expects canola to keep pulling back, with support at $900 per tonne.
The declines in canola and other edible oils are due to the pullbacks in global crude oil prices, he said. Crude has fallen largely because of fear of the new Omicron variant of COVID-19 stifling demand.
“A lot of damage has been done to these markets. The collapse in crude oil is really meaningful. The crude oil market is now a bear market. The key support as I see it is US$60 per barrel,” Anderson said. “The king of commodities has spooked the other commodities.”
That said, the analyst pointed to the current prices for canola and other grains as still be very good.
For any about-face for canola to be sustained, Anderson said fresh bullish news is required.
“That would have to be South American weather. If South America is normal, then the path of least resistance is downward,” he said.
At the centre of that continent’s weather is a La Nina, which has already caused some concerns over dry conditions in parts of Argentina and Brazil. A range of projections has put the coming soybean crop in Brazil at a record-shattering 144 million tonnes, while Argentina is set for a hefty 50 million tonnes.
Anderson said if those big crops come in, then there’s little hope for canola or any edible oils to make skyrocketing gains. He stressed that Chicago soyoil has lost about 10 per cent over the last couple of weeks and without its support, there’s little chance of canola rising to fresh highs.
On another note, market expectations ahead of the Statistics Canada report on Dec. 3 have pegged this year’s canola production at 11.5 million to 13 million tonnes. Previously, the federal agency called for 12.78 million tonnes, after initial projections from earlier this year set hopes at around 20 million tonnes.
— Glen Hallick reports for MarketsFarm from Winnipeg.
