Navigating today's canola markets
Winnipeg canola futures have been in relative decline over the past two weeks and, as of Nov. 28, dropped to their lowest levels in five weeks.
A turn lower in world vegetable oil markets triggered speculative fund long liquidation as canola futures moved below some key averages. Farmer hedge selling is also another bearish influence, with year-end bills soon coming due.
Scaled-down end-user demand provided underlying price support. Uncertainty over South American soybean production and the resulting strength in Chicago soybeans helped temper the declines.
Chicago soybean futures have edged up during this period, stopping around the US$10 per bushel on the nearby January contract. There is a seasonal tendency for the soybean market to pause and retrace any post-harvest bounce following the American Thanksgiving.
The latest U.S. soybean export inspections totaled 1.58 million tonnes, near trade expectations, but down from the previous week and the same week last year. U.S. soybean exports and unshipped sales are well behind the average of 72 per cent of the year’s total for this week.
Chart wise, January soybean futures continue to show a sideways trend on weekly and monthly charts, while daily the contract has tried to rally, only to fall back from session highs. Still, it sits well above its recent low of $9.67 per bushel.
World vegetable oil markets
Notable to our canola market is the continued weakening of world vegetable oil markets (soy and palm oil), despite uptrending crude oil and commodity index charts.
The active Chicago soyoil chart dropped to a five-week low to start this week, the active Euronext rapeseed price hit a five-week low, and the active canola chart also showed a five-week low. Key chart support levels are being tested. Nearby Chicago soyoil and Malaysian palm oil futures traded below their respective 200-day moving averages. January canola moved below its 100-day average to begin this week.
January canola futures have clearly faltered with recent price action. They've tripped well below the up-trending support line drawn from the mid-September low. Near-term tops appear in place with price retracement underway. The rollover lower suggests speculative fund traders may move to liquidate at least a portion of their 20,000 net long canola futures position as we enter December.
Hitting an overhead wall
Canola has repetitively hit an overhead wall when nearby January futures get into $520 per tonne territory.
While demand and farm deliveries are outstanding, canola has repeatedly hit an overhead wall when nearby January futures get into $520 per tonne territory. Again, this is because the oilseed market turns wobbly after the U.S. Thanksgiving.
Demand will likely need to be incentivized by a cheaper relative valuation at least once this winter. Sustaining canola crush margin mediocrity and $50 per tonne premium to soybeans all year is not realistic.
This should not be the start of a major and sustained price downtrend for the canola market. Rather, this is all part of the longer term momentum ebb and flow of trade we have seen for the better part of the past three years.
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.