- Spillover is a key influence from the Chicago soy complex
- There's further near-term price erosion potential for both old- and new-crop canola until a new bullish catalyst emerges
While the prospect of tightening old crop supplies amid delayed new crop spring seeding should be supportive to the canola market, spillover price pressure is exerted by the broader, global oilseed markets.
In fact, on May 30, Winnipeg canola futures broke below important chart support as speculative long liquidation in the futures market, along with increased farmer selling in the cash market, turned the market bias down.
Key influence is the spillover bearish turn from the Chicago soy complex as rumours of China cancelling United States soy export cargoes dominated last week’s trade as demand shifts to South American origin.
There remains the opinion that old crop canola supplies are tightening. But without further new crop distress and bearish market conditions developing across the broader oilseeds markets because of persistent large supplies (soy, palm, etc.), the competitive position of canola erodes as prices in those bigger markets decline.
I’ve believed for the better part of two years that the canola market has been sideways and range-bound in a big supply/big demand trading environment.
And even though Canada's canola crop may not see the intended 22.4 million acres (20.4 million last year) once planting is complete, the market view may be that it's enough, as long as trend yield is realized. That means further near-term price erosion potential for both old- and new-crop canola until a new bullish catalyst emerges.
Chart wise, nearby July canola futures pushed below technical support at $515 a tonne, where prices have sat for the past six weeks. That's not encouraging when Chicago Board of Trade July soybeans dropped 26 cents a bushel last week to finish at its lowest point since last summer, and started this week pressing further to the downside.
Recent price action suggests traders are starting to factor in a switch of more 2017 U.S. acres from corn to soybeans amid persistently wet weather through the southern and eastern Corn Belt. With more rain in the forecast, especially across the wettest areas, there's risk of additional price pressure. Bears have momentum in the soy complex.
The move in CBOT soybean futures below last Friday's low has triggered technical selling. Old-crop July bean futures may be headed for a test of the US$9 per bushel level.
Winnipeg canola futures may reach another $20-plus downside risk, given our long-standing view that the cash market repeatedly stalled in testing up to $11 a bushel this past year - and canola’s upside seasonal trend bias often wanes in June.
Vegetable oil market
For the better part of two years, I've viewed the canola market as sideways and range-bound in a big supply/big demand trading environment. As such, markets operating under these conditions often oscillate for periods of time one way, then other - but within a broader sideways range.
The recent weaker turn in the U.S. soy complex and across global vegetable oil markets (soy/palm) may be the trigger for the canola to roll back from its spring-time rally as these oscillations continue.