ICE weekly outlook: Canola continues its collapse

MarketsFarm — After losing $62 per tonne the week before, the May contract on the ICE Futures canola market extended its losses for the week ended Wednesday with little relief on the horizon.

Winnipeg-based trader Jerry Klassen of Resilient Commodity Analysis said the massive selloff is the result of farmers realizing there wouldn’t be a rally in canola prices after previously holding off on selling.

Another reason, according to Klassen, is exporters and end users entering the market earlier than usual, rather than in March and April.

“What we find now is the market is in a situation where you have limited demand and increased farmer selling and that’s been the theme here over the last couple of weeks,” he said.

A projected record soybean crop in Brazil and a larger-than-expected canola carryout in Western Canada are bringing down prices for the latter. Optimism over growing conditions in Western Canada and a drop in fertilizer prices are putting more pressure on prices, according to Klassen.

“We’re looking for a small year-over-year increase in soybean acres next week from the (U.S. Department of Agriculture’s monthly supply/demand report), and in Western Canada, we’re probably going to see a three to five per cent increase in canola acres in new crop,” he added.

“Farmer selling is probably going to be a little bit more aggressive here in the latter part of the crop year and then we’re going ahead into spring with excellent seeding conditions.”

As summer approaches, Klassen anticipates canola prices to drop down to $600/tonne.

“Maybe we won’t get there exactly on the May, but to see the July go down another $75/tonne wouldn’t surprise me. Because at some point, the farmer’s going to open the floodgates and pour the stuff out.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.