ICE weekly outlook: Will canola’s bull market continue?

Loonie's strength has oddly little effect

ICE November 2020 (blue), January 2021 (yellow), March 2021 (orange) and July 2021 (green) canola futures. (Barchart)

MarketsFarm — Canola has been seeing terrific days on ICE Futures so far in October, thanks to a bull market generated by good demand and further supported by traders looking to roll out of their November contracts as those soon expire.

As October winds down, the big question is: will canola’s ride come to an end going into November? Contracts for November and other months have seen new highs on a regular basis.

As the rise in canola prices began earlier in the summer, they took off at the end of September when the U.S. Department of Agriculture (USDA) issued reports on grains stocks as of Sept. 1 and on small grains. Those reports made it clear to the markets that the amounts of soybeans, corn and wheat were lower than anticipated.

The resulting sharp jump in the soy complex on the Chicago Board of Trade (CBOT) provided a large amount spillover to canola, with the nearby November contract getting a $8.40 per tonne boost.

For the most part, canola kept climbing as harvest pressure from the Prairies diminished — and Prairie farmers were rather reluctant to part with their canola. In turn, grain buyers had to dangle the proverbial carrot, so prices went up.

Support wasn’t just coming from the domestic canola market, as the Canadian Grain Commission reported exports are nearly 50 per cent higher compared to this time last year.

“The strength is certainly there, whether the market continues in one direction or not. This canola could drop $10, $15, even $20 and still be an upward trajectory,” David Derwin of PI Financial in Winnipeg said.

There is an unusual flatness within the canola market, he said: the January contract closed Wednesday at $548.80 per tonne, only a dime above the November price. The March contract topped off at $550.10, with May at $547.50 and July at $545.20. He also noted both the CBOT soy complex and European rapeseed were inverted.

Another unusual element is that recent strength in the Canadian dollar hasn’t much affected canola’s rise. The loonie is now positioned above 76 U.S. cents — normally a good reason to push canola lower to spur exports.

Keith Ferley of RBC Dominion Securities cautioned market conditions could change if planting conditions in Brazil improve. Dryness in Brazil, as well as in Argentina, has impeded soybean planting to about a third of where it normally should be.

There has been some rain for both South American countries, but not enough to alleviate the situation. However, more precipitation is in the forecast.

“My concern is it starts raining in Brazil and then all of these markets run out of steam and have a bit of a setback,” Ferley said.

Improved growing conditions in Brazil, the world’s largest producer of soybeans, would pressure Chicago soybeans to retreat. In turn, he said, the spillover would pull down canola.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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