Market variables lift canola futures

Market Focus

Highlights

  • The USDA report and Argentine weather issues gave oilseed market some lift
  • Cash canola pricing benefited from rising futures and improved cash basis
  • Chart patterns are behaving as though interim downside momentum of the past month is already exhausting

There was an interesting set of market variables helping increase the price of Winnipeg canola futures over the past week. As of Jan. 18, the nearby March canola contract has gained about $11. That's happened since the release of the United States Department of Agriculture report data Jan. 12. The price has survived a recent test down to psychological chart support around the $500 a tonne mark, which happens to be where the 200-day moving average resides. Strong canola crush margins and an Argentine weather-induced rally in Chicago soybean futures seemed to be the driver for rising canola futures today.

This week's top three canola news stories

1. Continuing USDA report reaction. Lower old crop U.S. soybean stocks with corresponding trade expectation that 2016-2017 bean carryout is closer to 350 million bushels, not the 420 million posted last week by USDA. The agency has begun its seasonal trimming of annual soybean carryout estimates to adjust previous overestimations of supply and underestimations of demand.

The combination of superior basis and futures strength should be viewed as any opportunity.

2. Soybean traders are expressing some sudden concern about the torrential rains seen in Argentina earlier in the week. This week, South American crop consultant Dr. Michael Cordonnier slashed his Argentine soybean crop peg by four million tonnes to 51 million tonnes, and that’s down from a season starting point of 57 million tonnes.

The associated thought then is a longer demand window for old crop U.S. origin soybeans in the coming weeks and months.

3. Of interest is the depth of canola price specials being offered at delivery points across the Prairies recently. Several points like elevator and crusher have improved cash basis, even if temporary, by $7 to $15 a tonne, delivery often in March position, but will sprawl into April. The combination of rising futures and improved basis has enabled canola cash bids to rise with $11-plus per bushel opportunities back on the table.

What Now?

The ability of the soybean market to rally abruptly since Jan. 12 suggests overall demand is still decent and sensitivity to any supply disruption threat, like that from Argentina, remains high.

Stronger canola basis in light of energetic futures is also supportive of the canola demand story, but higher pricing will encourage increased hedge pressure to limit the topside in the futures pit. We know crush margins are good. Chart patterns are behaving as though interim downside momentum of the past month is already exhausting.

At $510 a tonne on the March contract, canola is right at downtrend resistance, but bulls are touting the 200-day moving average held as support around $500 a tonne.

Bottom line

I don’t think we have cause to rocket to new highs, rather ebb and flow, but we are assigning higher odds that downward momentum (two-month prognosis) may be transitioning to sideways.

For growers behind in their canola cash sales, those who wished they would have done something before the previous month decline and know they must move canola in the coming two to three months (due to cash flow or ahead of spring thaw), this combination of superior basis and futures strength should be viewed as an opportunity.

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.

Did you know that we host free learning events across Canada on topics just like this? Find a free event near you.

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