ICE weekly outlook: More losses likely for soft canola

ICE May 2019 canola with Bollinger (20,2) bands. (Barchart)

ICE canola futures fell to fresh contract lows during the week ended Wednesday and could be due for more losses with little supportive news on the horizon.

“Unfortunately the technicals and fundamentals are tremendously bearish,” said analyst Wayne Palmer of Exceed Grain Marketing, adding “fresh contract lows breed fresh contract lows.”

While optimism over trade talks between China and the U.S. was providing some underlying support for U.S. soybeans, the lack of any confirmation on the trade front has market participants growing impatient.

Without a firm deal, Palmer expected the trend was pointing lower in soybeans, which would weigh on canola as well.

As the U.S. market goes lower, funds are adding to their short positions in canola.

Meanwhile, “the producer is the biggest long in the market,” said Palmer.

Farmers are undersold and looking for a bounce to price their canola, but may not see that bounce before they’re forced to sell for cash flow needs ahead of the spring and new crop.

“It’s a dangerous situation,” he added.

While a China-U.S. trade deal would give soybeans a boost, it would likely come too late to change the burdensome supply situation for soybeans.

Canada is still having its own diplomatic problems with China, with ideas that China has not bought any new cargoes of Canadian canola so far in 2019.

That soft export demand could see canola ending stocks climb to three million tonnes by the end of July, which compares with the 2017-18 carryout of 2.499 million.

“Somebody has to have a disaster somewhere in the world soon, or otherwise the price has no place to go but heading south,” said Palmer.

— Phil Franz-Warkentin writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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