ICE weekly outlook: More room to the downside for canola
Vegetable oil markets also became weaker
| 2 min read
Canola plants in flower in a field north of Lorette, Man. on July 20, 2022. (Dave Bedard photo)
Glacier FarmMedia -– Even though selling activity for canola could be slowing down, according to an analyst, there are too many bearish indicators to predict a boost to prices.
Jerry Klassen of Winnipeg-based Resilient Commodity Analysis said that winter seasonal weakness is partially to blame for canola prices hitting lows unseen since June. However, canola’s record short position by the funds isn’t leaving much more room to sell.
“(The funds) are running out of selling power. That selling may be easing up here and could ease up (later),” he said. “Sometimes you could see some volatile swings, but the overall trend remains lower.”
Klassen added that a widening of the March/May spread put pressure on the nearby March contract, as well as declining crush margins. Vegetable oil markets also became weaker due to increased palm oil production in Indonesia and Malaysia, as well as Argentina’s soybean crop more than offsetting losses from Brazil.
“We have some problems in Brazil, but it looks like the (soybean) crop there will be about the same size as last year. Despite the adverse weather, it doesn’t look like we’re seeing a significant year-over-year decline in production,” Klassen said.
He is also hearing estimates for United States soybean seeded area later this year to be four million to five million acres more than in 2023, adding to the crop’s bearish outlook.
“We’re also looking for a marginal increase in canola acres for new crop,” Klassen added. “The larger potential new crop (canola) production is overhanging the new crop supplies. That’s also setting a negative tone…The trade is coming to terms here that farmers have their seeding decisions ready and it looks like there’s going to be an increase in canola acres and a sizeable increase in U.S. soybean acres.”
While dry weather in the Prairies this winter could impact canola production this year, Klassen added it’s too early to say if there will be a major effect.
If the Canadian dollar stays at current levels, he believes that the March contract can go down to as low as C$600 per tonne, with little signs of support.
“It’s really hard to argue for a bullish case,” Klassen said. “When we get to the end of March, when we’re going to that seeding period, usually the farmer selling tends to subside and we tend to get a bounce in the spring time frame. But that’s dependent on how conditions are…The demand (right now) looks pretty sluggish.”
— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.
