“We’re still at the mercy of trying to determine what size of crop we have,” said MarketsFarm Pro analyst Mike Jubinville, noting trade guesses range anywhere from 16.5 million to 19 million tonnes.

He was leaning toward the lower end of that range, at around 17.5 million tonnes, which would be well below Agriculture and Agri-Food Canada’s current estimate of 18.8 million and would leave the country with relatively tight exportable supplies.

He expected domestic crushers would continue to pay up for canola, given the historically wide crush margins, with most of the necessary demand-rationing coming from the export side of the market.

“We have this element of demand-rationing… which limits the downside, but immediate harvest pressure will create volatile activity over the next few weeks,” Jubinville said.

Gains in outside vegetable oil markets were supportive, he added, limiting the downside risk for canola through the harvest season.

From a chart standpoint, Jubinville said the convergence of the 50- and 200-day moving averages around the $760 per tonne level in the November canola contract was providing support, although that level could be tested during the harvest.

On the other side, November canola settled just below the psychological $800/tonne level on Wednesday.

Beyond the Canadian harvest, the market will also be keeping an eye on U.S. soybean production and then on South American crop potential.

— Phil Franz-Warkentin is an associate editor/analyst with MarketsFarm in Winnipeg.

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The July canola contract dropped $20.60 per tonne during the week to close at $714.10 on Wednesday, while the November contract fell below the $700 per tonne mark, losing $25.70 on the week, to $685.90.

Derwin said canola prices typically move upward at this time of year, but macroeconomic factors have had their way as of late.

“Canola has been drifting sideways (for) the last week or so, hovering around the $700 mark for new- (and old-) crop canola,” he said. “On its own, canola’s been a little bit quieter.”

Meanwhile, the Chicago soy complex has been in a spiral, with the July soybean contract losing 67 U.S. cents per bushel over the past week to close at US$13.37. The July soyoil contract gave up 5.64 U.S. cents per pound, to 46.41, and has gone down in seven of the last eight trading days.

Brazil’s record soybean crop, declining crude oil prices and last week’s bearish supply/demand report from the U.S. Department of Agriculture (USDA) have pressured soybean prices, but not so much canola, according to Derwin.

“Canola has actually held up pretty well, considering,” he said. “(The report) wasn’t overly bullish. As a result, the prevailing underlying trends remained the same and gravity kicked in, pulling (soybeans) lower.”

As new-crop canola went under the $700/tonne mark, Derwin thinks there is room for it to go lower.

“I guess it could go down to $680 (or) $670/tonne,” he said. “The trends are still pointing lower. I wouldn’t be surprised to see a little bit of seasonal movement higher, but there is room for the market to go lower… But it doesn’t go straight down. Maybe it takes a break in the next month or so if the weather is questionable.”

In the short term, Derwin said determining where canola could go is a “coin flip.”

“Even with a prevailing downtrend, it could go down $20 to $40 (per tonne) and it could go up $20 to $40. Every couple of weeks, it’s hard to say where (canola’s) going to go.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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“We have come down to the low end of the range,” said David Derwin, commodity futures advisor with PI Financial in Winnipeg.

As canola retreated prior to the beginning of May, Derwin noted it hit its support level of around $680 per tonne in the new-crop November contract — about the same level it was at the end of March.

Spring planting does not necessarily put pressure on canola values, he said, and May and June can produce the highs for the year.

The November contract on Wednesday closed just short of $690/tonne, to which Derwin suggested canola could easily add another $50/tonne, although it would still be “in a sideways, down trend.”

While farmers will soon be extremely busy with their seeding, Derwin cautioned they should not take their eyes off of the markets, and to take advantage of any positive opportunities.

Reports said farmers in southern Alberta were already in the fields, with the province getting the warmest temperatures on the Prairies.

Moving eastward, conditions become a little more wet, but normal and above-normal temperatures could see farmers heading to their fields as well.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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Anderson pointed to losses in Malaysian palm oil and weakness in China’s soymeal market as weighing on ICE canola values, with more pressure coming out of South America.

“The [soybean] production in Brazil is mind-blowing. Their production is covering up the losses in Argentina,” he said.

The U.S. Department of Agriculture (USDA) on Tuesday bumped up its call on the Brazil soybean harvest by one million tonnes at a record 154 million tonnes, in the department’s latest supply and demand (WASDE) report.

Meanwhile, drought-ravaged Argentina saw its production chopped by six million tonnes at only 25 million. At one time, there had been hopes of Argentina reaping 40 million tonnes or more of soybeans.

With all the pressure on canola, Anderson said that November contract is poised to again fall below $700 per tonne. He noted the major support level is at $680/tonne. Meanwhile, resistance for November stood at $740.

“That’s the ‘chop zone’ until we get into the growing season and we see how things are,” he commented, noting there’s little chance of canola prices collapsing. He suggested if there were enough fresh, bullish news the price could climb as high as $775.

Although Statistics Canada will release its prospective plantings report before the end of April, Anderson said it appears the report is likely to have little effect on canola prices.

Rather, he said, it’s best to keep an eye on crush margins, especially with soymeal not doing very well in China.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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“We’re stuck a little rangebound here,” a Winnipeg-based trader said of the sideways activity, noting the expiry of November options on Friday (Oct. 21) could lead to some more “jostling of positions” over the next few days.

Beyond month-end positioning, activity in the Chicago soy complex and other outside markets will likely set the tone for the canola market, the trader said.

With the canola harvest nearly wrapped up across the Prairies, he noted, farmers were holding off on sales, which was providing some support. Historically wide crush margins were another bullish influence.

From a chart standpoint, the January contract bounced off support at the 20-day moving average around $860 per tonne and climbed higher to test the 100-day average to the upside around $875 per tonne.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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While additional corrections are possible, both the underlying fundamentals and technical remain supportive.

“This is the bull market of all time in canola,” said analyst Mike Jubinville of MarketsFarm Pro.

While both domestic crush and export movement are down on the year, “unless there is more canola out there that we don’t know about we have not created the recipe of demand destruction yet,” according to Jubinville.

While canola may be trading at record-high levels, the oilseed is still competitively priced, he added.

“Right now, the trend remains our friend,” said Jubinville, noting prices would have to retest their 20-day moving averages before even beginning to think that the top may be in.

The old-crop July contract settled Wednesday at $1,144.80 per tonne, which would be $17 above its 20-day moving average. Meanwhile, the new-crop November contract, at $1,048.70 per tonne, was about $50 above its 20-day moving average.

“There’s nothing to say ‘This is the top’ yet,” Jubinville said, adding that canola typically sees strength from a seasonal standpoint at this time of year as well.

Upcoming acreage estimates from Statistics Canada on Tuesday could provide some nearby direction. While current prices should incentivize planting canola, prices for most other crops are also strong and Jubinville expected canola area may be reaching its limit.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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That’s given Winnipeg-based analyst Wayne Palmer of Exceed Grain reason to believe canola will bust through $900 per tonne.

“That’s all due to the drought and canola is just around the corner from breaking out and I think, taking a moonshot as well,” Palmer said.

“Canola is going to be traded methodically. I think the fireworks are towards the end of October.”

Palmer based that on increases seen on the Chicago Board of Trade (CBOT) during harvest in the United States. His forecast has been based on yields in the U.S. coming in below average and that end-users are buying now rather than waiting until harvest is finished.

On top of that, the U.S. dollar has spiked in recent days, which would otherwise push prices downward.

“Everything should be a bearish scenario and not a bullish scenario,” he said.

Palmer likened canola to Chicago oats, which were pushing toward US$6 per bushel due to the drought-stricken crop providing low yields.

Besides what’s been happening at the ICE and CBOT, European rapeseed and Malaysian palm oil were hitting new contract highs — which also underpinned canola values.

As well, Palmer said “everyone is short” when it comes to their canola.

As October is about to begin, there will soon be movement to roll out of the November contract into January and other positions.

With growing expectations of the canola harvest coming up short of 12.8 million tonnes forecast by Statistics Canada, the trade will want to move when it can.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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“New-crop futures might take a run at $1,000 per tonne, but in the same breath the November contract sees support at $850,” Anderson said, indicating the next level of support down is $770 per tonne.

“In my career, I’m not sure if I have really seen it that wide,” he added, noting volatility was very likely to remain entrenched in canola futures through the rest of summer.

While severe drought across most of the Canadian Prairies has dashed all hope of meeting or exceeding a harvest of 20 million tonnes of canola, that alone won’t be enough to assure sustained price increases in the weeks and months to come.

Also, the very tight supply situation is not a guarantee as well, according to Anderson.

“Palm oil is starting to crack. Soyoil is starting to crack. Canola has to respect the global [vegetable] oil market,” he said, pointing to increases supplies on the world stage.

Regardless of how tight canola supplies are, prices will need to follow the path laid out by palm oil and especially by Chicago soyoil, which canola follows faithfully.

He believes soyoil could retreat from the 66.22 U.S. cents/lb. level, at which the August contract closed Wednesday, down to 50 cents/lb. within the next few months.

Added to that, Anderson said “the Canadian canola engine” of production and demand will shrink, especially with exports projected to pull back in 2021-22.

That would put further pressure on prices — as would buyers seeking alternatives to canola, should it become too expensive.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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“Where (July canola) finally goes off the board, I have no idea, but I wouldn’t be surprised if we set a new record yet on that one,” MarketsFarm Pro analyst Mike Jubinville said, adding that “somebody’s feet will be held to the fire.”

Speculative money still has the potential to move the July contract, with every profit-taking correction in the past eventually leading to another leg higher.

Meanwhile, domestic crushers and other end-users are basing most of their cash contracts off the November futures, for both old- and new-crop delivery.

With the growing season just getting underway, weather conditions will play a key role in dictating market direction going forward.

“Corrections can come at anytime, but I don’t think we can get bearish on the oilseed markets,” said Jubinville.

In addition to the general dryness across Western Canada, he pointed to tight supplies, solid demand, and the emerging biofuel industry as underlying supportive influences.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

The post ICE weekly outlook: Attention turns to new-crop canola appeared first on Country Guide.

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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