Despite ups and downs, canola markets still see solid demand
Despite its daily ups and downs, the canola market remains largely a sideways trending affair. It's balanced by support from still solid demand and a weakening Canadian dollar versus recent bearish price trends for competing world oilseeds and vegetable oil markets.
In a grain stocks report released Feb. 5, Statistics Canada pegged total nationwide canola stocks as of Dec. 31, 2017 at 14.2 million tonnes. That's slightly lower than trade expectations of 14.3 million, but still up 5.7 per cent from a year earlier. It's also a new record high.
This data sustains the trade view that Canada’s canola supply will not run out this marketing year and that pricing must remain competitive to move such large volume.
Competing soybean market
With the competing soybean market under recent pressure and world vegetable oils seemingly well-supplied, it seems challenging to expect sustained near-term rally potential for the canola market.
However, solid end-user demand and a lack of significant farmer selling pressure provide underlying market support. Persistent South American crop weather concerns also sustains caution in the futures.
For much of the past month, since bottoming just ahead of Jan. 1, the canola market remains rangebound. Nearby Winnipeg March canola futures encountered stiff overhead technical resistance at the $500 per tonne level, with underlying chart support down around $485 per tonne.
Mixed and choppy prices in canola futures is likely to prevail for now. Typically, some sort of breakout move is triggered from consolidation like this, but there's no certainty on timing and direction. I’m of the view that a bottom is being carved out and a move upwards is coming.
For that to occur, the canola market needs to overcome ongoing vegetable oil market weakness, with nearby Chicago soybean futures managing a sustained move above its own overhead chart resistance at US$10 per bushel.
If canola is to have a moment of upside leadership, it likely will occur around April-forward.
If canola is to have a moment of upside leadership, again, it likely will occur around April-forward. Reasons then could involve Western Canada supply fears (lingering dryness issues), random bouts of speculative money inflow into futures markets and/or a one month demand spurt.
Developing market conditions do not change the probable narrative of an April-forward price bounce, but sellers must be realistic that absent a major oilseed crop wreck somewhere, price upside shall be contained.
Also, due to the slower pace of farmer selling in January, Prairie-based canola cash basis levels at the elevator have tightened an average of about $10 per tonne in past month with little movement in Vancouver port basis levels. That tells me the line companies are still hungry enough to keep canola movement fluid and have trimmed their margins to acquire inventory from the farmer.
The canola market prices are balanced by nearly equal supply and demand right now, creating sideways trends.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.