ICE Weekly: Low stocks, dry weather raising canola prices

Glacier FarmMedia | MarketsFarm — Canola futures on the Intercontinental Exchange continued its slow rise as they approach new psychological levels.

July canola advanced C$19.30 per tonne during the week ended June 11 to close at C$714.30, while November canola rose by C$17.10/tonne at C$693.90. While the July contract tries to surpass C$720 for the first time since last month, the November contract has encountered resistance at C$700.

Phil Speiss, trader with RBC Dominion Securities in Winnipeg, said the ongoing depletion of canola stocks are contributing to price gains in the nearby July contract.

“At C$700 (per tonne), you’d think we’d see some sort of decline,” Speiss said. “Carry-in is going to be really, really tight. We’re starting the crop season off on firm footing knowing that carryout stocks are going to be tight.”

He also noted that a vessel report included canola being sent to China last week, the first in more than a month. To Speiss, it means canola demand is still going strong.

“We’re already above the (Agriculture and Agri-Food Canada) estimate on the exports. We have eight weeks left in the year, so that’s going to have to be revised forward,” he said. “We’re all looking forward to the Statistics Canada crop report on June 27. It’s just an acreage report, but I wonder if they are going to tweak some supply numbers in that report. If not, we’ll have to wait until August to get a revision.”

Dryness has negatively affected subsoil moisture in much of Saskatchewan and in eastern Alberta so far this summer. However, recent and upcoming rains in those areas are slowing down or stopping further deterioration of the canola crop. Speiss said it’s too early to say if the rains will have any long-term effect.

“(Low subsoil moisture) is keeping the risk locked into the upside,” he said. “Guys were a bit fearful about their crops a week ago. Some of that has been pushed to the back after rains last week depending on who you talk to. … I suspect we start to see a pullback off these highs, but we can’t do that right now as long as there is a lack-of-moisture threat in the market today.”

Speiss said the July contract could reach C$720/tonne and the November contract could surpass C$700, adding that July should have a larger spread compared to November. However, he added there must be good reasons for the oilseed to attain those levels, considering crush margins are in decline.

“I don’t know if (the rally) is necessarily company-driven. I think it’s thin-volume funds still slowing piecing in length. But (the net long) position’s quite large,” Speiss said. “At some point, you either have to see an increase in open interest in November to justify additional fund buying, or we’ll have to see some sort of fundamental shift that warrants increased company demand. That might come from exports; it might come from crush.”