ICE Futures Canada canola contracts dropped sharply during the week ended July 26, with the nearby contract settling below the psychological $500-per-tonne level for the first time in a year and a half.
The list of bearish factors keeping canola pointed lower is considerably longer than any supportive points on the other side at this time. Good Canadian growing conditions, a lack of major weather threats, equally favourable U.S. conditions, a stronger Canadian dollar, losses in soybeans, losses in palm oil, a good European rapeseed crop, extremely weak chart signals, speculators holding large short positions, end-users holding out for large new-crop supplies, and increasing farmer selling are all weighing heavily on the canola market. Barring a weather scare or other outside influence, the path of least resistance remains pointed lower for canola with any attempts at correcting higher likely seen as a good selling opportunity.
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From a technical standpoint, the break below $500 per tonne sets the stage for a test of the next major support around $450 in the November contract. Speculators are believed to be holding a net short position of over 30,000 contracts and will be watching their profits grow as prices decline. However, that large short position does leave the door open for some short-covering, which could build on itself if enough other factors turn bullish.
Wheat, durum, and barley futures in Winnipeg were untraded once again during the week, although prices saw some adjustment to keep in line with the U.S. market.
In the U.S., soybeans, corn, and wheat were all lower as well, with improving crop conditions and bearish chart signals behind much of the selling. While there are enough areas of concern to keep some premiums in the futures, the likelihood of large U.S. soybean and corn crops is getting closer to reality on a daily basis, causing values to grind lower and making the tight old-crop supplies less of a concern.
For wheat, seasonal harvest pressure and expectations for large global wheat crops have weighed on values recently. Russia is in the middle of harvesting its wheat crop, with production well ahead of last year. European Union wheat prospects are also showing continued improvement.
From a technical standpoint in the U.S., the November soybean contract is getting closer and closer to the US$12-per-bushel level. Should that chart point be breached, next support comes in at about US$11.80. For corn, the December contract moved below US$5 per bushel earlier this month and could be headed towards US$4 according to some analysts, but nearby support should come forward well before that point.
Weather will remain a driving factor in the grains and oilseeds heading into August, with participants continuing to follow the shifting forecasts closely for any tidbits of information to trade off of. The outside financial and commodity markets should also provide some direction, although the agricultural commodities have been distancing themselves from the broader economic flows recently.
Phil Franz-Warkentin writes for Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting
