ICE weekly outlook: Canola looking cheap despite gains

CNS Canada — ICE Futures Canada canola contracts may be on the rise, but the commodity is actually looking cheaper to end-users, which should keep values supported going forward.

“Canola is getting pulled higher, it’s not going up on its own,” said Ken Ball of PI Financial in Winnipeg.

Recent strength in Chicago Board of Trade (CBOT) soymeal and weakness in the Canadian dollar were behind much of the advances in canola futures.

While the May canola contract has posted solid gains in recent weeks, the oilseed has lost ground compared to the product values, with crush margins improving to about $90 above the futures. That compares with about $65 a month ago.

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While the futures may look more expensive, “canola is dramatically more attractive to a buyer now than it was then, because canola has gone up so slowly compared to the other values,” said Ball.

He expected that trend to continue as long as those outside forces remain supportive.

Soymeal is not usually a big factor for canola, “but when it goes up this much, it becomes a factor,” said Ball.

However, poor export demand and increased farmer selling could limit additional gains in canola.

“If the exports don’t perk back up for us, we’re looking at a carryout of well over two million tonnes on paper,” said Ball, “maybe in excess of 2.5 (million).”

— Phil Franz-Warkentin writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.

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