Bears beat down bulls on canola contract values

A slew of ‘panic’ selling from farmers worried prices are going to 
keep tumbling lower weighed on canola values

ICE Futures Canada canola contracts moved to fresh contract lows for the second straight week during the week of Dec. 9 to 13.

Nearby contracts lost more than $30 per tonne, as there were more bearish than bullish factors pressuring the market. The January contract broke just below the key technical level of $440 per tonne on Dec. 13.

The surprisingly large 18-million-tonne Canadian canola crop continued to overhang the market, as did logistical issues and expectations of a larger than three-million-tonne carry-out this year.

Chart-based selling as futures broke through key levels of support added to the bearish tone, as did a technical bias that is now pointed to the downside. Speculative-based long liquidation ahead of the new year was also a noted feature.

A slew of “panic” selling from farmers, who are worried prices are going to keep tumbling lower, further weighed on canola values.

The losses in canola were also linked to spillover pressure from the weakness in outside oilseed markets, though the futures were said to be somewhat divorcing themselves from Chicago soybeans and trading on their own bearish fundamentals.

The canola market continues to be pointed lower, with large losses still possible before finding a true bottom. More speculative selling could build on itself if the January contract continues to settle below the $440-per-tonne level.

There will likely be corrective bounces here and there going forward. But any bounce will be seen as a good selling opportunity, which will curb the advances.

Chicago soybean futures were holding steady during the week. A positive U.S. Department of Agriculture report helped to support prices. USDA estimated 2013-14 domestic soybean stocks at 150 million bushels, down from pre-report expectations of 153 million and its last estimate of 170 million.

Strong export demand, as the U.S. is one of the only places with readily available supplies, was also bullish. If export demand stays strong, nearby soybean prices could still move higher.

Record-large global supply expectations, however, due to large crops out of the U.S., Canada, Brazil, Argentina, Paraguay and Uruguay were bearish and could continue to put downward pressure on prices going forward.

Chinese cancellations worry

Traders are also worried China may start to cancel some previously purchased tenders of U.S. soybeans, though no cancellations were reported as of Dec. 13.

Worries about Chinese purchase cancellations were also noted in the CBOT corn futures, and helped to bring prices to lower ground. China was rejecting shipments containing non-approved GMO corn from the U.S. during the week, which sparked fears that they may also cancel purchases of dried distillers grains (DDGS) from the country.

Another bearish feature was the news that the U.S. government is thinking about eliminating the ethanol mandate.

For now, however, ethanol demand in the U.S. is strong, which helped to limit the losses, as did good buying interest from exporters. Going forward, corn prices should avoid dipping too low as long as the demand remains strong.

USDA increased its estimates for corn exports and domestic ethanol usage in its December crop report, and it’s expected they will only get bigger in upcoming data.

Stocks weigh on wheat

Kansas City, Chicago and Minneapolis wheat futures moved sharply lower during the week, as the large global supply situation continued to weigh on values.

USDA unexpectedly increased its global ending stocks figure in its Dec. 10 report, with the reasoning being larger world production. U.S. ending stocks were also upped due to an expected increase in imports from Canada.

The government agency estimated global ending stocks for 2013-14 would total 182.8 million tonnes, up from the previous estimate of 178.5 million.

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