ICE weekly outlook: Canola looks to USDA for direction

CNS Canada — The canola market continues to chop around in its recently-established range of $490-$500 per tonne, but a looming U.S. Department of Agriculture report could change that, according to an industry analyst.

“That (USDA supply and demand report) is going to be the driver,” said Keith Ferley of RBC Dominion Securities in Winnipeg.

There are ideas tomorrow’s report could feature yield estimates for the U.S. soybean crop that are higher than previously forecast.

The canola market could really move if there are any major surprises, Ferley said.

“The funds are still net short here in the canola,” he said. “So we could see some fireworks if we pop this thing up.”

Resistance continues to hold around the $499-$500 per tonne mark, according to Ferley. Line companies are being “lambasted” with sales as soon as they improve their basis by even a little bit, he said, so it’s clear farmers are sitting above the market waiting for prices they like.

The main volume continues to lie in the November/January spread.

“There’s very good activity here and the funds could potentially be back in on the buy side,” he said.

Harvest continues in Alberta and parts of Saskatchewan. The weather looks like it will continue to co-operate, Ferley said, so producers may be able to get the rest off.

“They have made some excellent progress,” he said. “We have seen exports kind of pick up in the weekly numbers and the crush jumped up last week.”

It’s becoming increasingly clear we are sitting on a record crop, he said, and farmers are also doing a good job of keeping product off the market.

“The concern going forward is, how do we market that crop?” he said. “If selling drops off and exports drop off then we’re going to have a winter of doldrums.”

Meanwhile, action in the Canadian dollar seems to have slowed down. The loonie remains stuck around the US80-cent mark, likely waiting for direction as to where fresh talks about the North American Free Trade Agreement will lead.

Many traders are already looking ahead to the crop in South America for the next major factor that could move canola.

“Will this dryness continue in northern Brazil?” said Ferley. “That could be the impetus to push things higher.”

— Dave Sims writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.

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