ICE weekly outlook: USDA report to steer canola

Canola futures on the ICE Futures Canada trading platform moved lower during the week ending Wednesday. Much of the weakness was linked to expectations that the 2013-14 Canadian canola crop will be record-large.

Harvest activities were also underway during the week across the Prairies, which further undermined canola values.

Harvest pressure, along with an increase of supply due to record-large yields being reported in many areas, will continue to be bearish for the market for at least another month.

But price direction will be dominated by what happens in the U.S. Department of Agriculture’s crop production report to be released Thursday (Sept. 12), said Ken Ball of PI Financial in Winnipeg.

Canola futures are especially vulnerable to the upcoming USDA report because the situation for the Canadian crop is the opposite from what U.S. soybeans are going through.

“We’ve probably got the best canola crop in most areas in history coming in, not just in total size but many areas are setting record yields,” said Ball. “And with that kind of a huge crop, the canola price is very vulnerable without the support from the (U.S.) bean market.”

“We have to hope that the bean estimate stays on the low side, and keeps oilseed prices supported a bit.”

Traders expect USDA will lower the U.S. soybean production figure, as the crop suffered during its key development stage amid unfavourable hot and dry weather.

Average estimates call for USDA to reduce U.S. soybean production by 3.3 per cent from their previous estimate, to 3.15 billion bushels.

If the actual figure comes in lower than expectations, some buying could come in and support North American oilseed markets. But if the number is above expectations, the canola market could be in a lot of trouble.

“Canola could lose C$100 a tonne very easily if it happens that the (U.S.) soybean crop comes in above expectations because we’ve got a mammoth canola crop coming in,” said Ball.

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

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