ICE weekly outlook: Is a bear market next for canola?

ICE May 2021 canola with Bollinger (20,2) bands. (Barchart)

Winnipeg | MarketsFarm — The canola market started to retreat this week as unpriced supplies still in the countryside approach non-existent, according to Wayne Palmer, analyst with Exceed Grain in Winnipeg.

For the first half of the week of March 15, canola began to lose strength, particularly in old-crop months. That was highlighted at the close on Wednesday when the May contract lost $16 per tonne, at $779.30. That was a far cry from the contract high of $810 the May hit the previous week.

With so little canola left in farmers’ bins, it’s no longer worth keeping the price high to induce them to sell, Palmer said.

“As the markets get dull and quiet, and get stuck in neutral, you have the almighty funds, which are long in all the grains, get nervous. They have enormous, unprecedented profits in their positions,” he said.

Significant moves downward will also be of benefit to the commercials that must cover their short positions, Palmer added, noting they have until April 30 to roll out of their May contracts.

“If we can turn the tide and get this into a bearish market, the funds will start pounding and liquidate. That gives the exporter a chance to get out because they have no other option than buying futures,” he said, again highlighting the lack of canola to buy from farmers.

However, it’s not only lower canola on which markets must now keep an eye. The South American soybean harvest is about to make its way to the global market, Palmer said. Recently, China has bought little in the way of U.S. soybeans, as it waits for those huge crops from Brazil and Argentina.

Palmer cautioned it could be surprising how quickly canola tumbles once the bear market takes hold. However, he stressed not all of the bullish aspects to the market have been eliminated.

“The funds are only going to liquidate… on down days. If the markets moves back up the next day, the funds will probably buy a little bit.”

— Glen Hallick reports for MarketsFarm from Winnipeg.

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