ICE weekly outlook: Canola watching currency markets

CNS Canada — ICE Futures Canada canola contracts moved higher during the week ended Wednesday, but further gains may be hard to come by without more support from the currency markets.

“We’ve been held up here by the weaker Canadian dollar,” said Jerry Klassen, manager of the Canadian office for Swiss-based GAP S.A. Grains and Products.

“It’s not the global supply and demand (moving the grain markets), it’s all of these other outside factors that are impacting,” said Errol Anderson of ProMarket Communications in Calgary, noting that movements in the currency markets were a major influence.

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The Canadian dollar is currently trading below US75 cents, due primarily to recent strength in the U.S. dollar. The exchange rates make canola more attractive for international buyers pricing in U.S. dollars, and make Canadian canola prices look higher than they actually are when converted into U.S. currency.

Some of the strength in the U.S. dollar (and relative Canadian dollar weakness) is tied to expectations for an interest rate hike in the U.S. However, even if the U.S. does raise interest rates as many expect later in December, the U.S. dollar could still weaken (which would be supportive for the Canadian dollar), due to the ‘Buy the rumour, sell the fact’ mentality — which would weigh on canola, according to Anderson.

Beyond currency issues, attention in the canola market will also be focused on the Statistics Canada production report, due out on Friday.

Trade estimates place canola production at anywhere from 14.5 million to 16.2 million tonnes, with most guesses coming in at around 15.5 million. That would be up from the StatsCan October estimate of 14.3 million tonnes, but still below the 16.4 million-tonne crop grown in 2014-15.

If the production number tops trade estimates the market could see a bearish reaction, but Klassen said the currency would still have a larger influence in the price direction.

Anderson also said a surprise in the StatsCan report could change the outlook on canola, but in the meantime the market was still stuck within a rather narrow range.

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

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