Harvest pressure and bearish chart signals kept the path of least resistance to the downside in the ICE Futures Canada canola market during the week ended Sept. 20. Prices drifted to their lowest levels of the past month, and will likely move lower still before the inevitable post-harvest bounce.
On a daily chart, the November future saw some damage during the week and appears to be headed for a test of the contract low at $472.40 sooner rather than later, as recently harvested supplies continue to flood the commercial handling system.
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However, a good portion of the activity in canola continues to stem from what‘s happening in U.S. soybeans. The harvest there is still a couple of weeks away, and the market remains uncertain over just how big the soybean crop will be this year.
While current canola contracts may set new lows before correcting higher, from a historical perspective prices are still relatively favourable. Looking back over the past 10 years, canola futures in Winnipeg have moved within a wide $500-per-tonne range, with prices trading from as low as $250 per tonne in late 2005/early 2006, to as high as $750 per tonne in 2008. Prices at harvest time in 2013 come in right in the middle of that range.
Over the same 10 years, canola production has generally trended higher, with many analysts predicting a record 16 million-plus-tonne crop in 2013. Ten years ago, Canadian farmers grew a 6.8 million-tonne canola crop, right in line with the previous five-year average of 6.6 million tonnes. When production jumped to 9.5 million tonnes by 2005-06 the demand was not yet there to utilize those supplies, resulting in the lowest prices of the past 10 years.
However, since that time, the domestic crush industry has grown considerably, with 6.7 million tonnes processed in 2012-13, from 3.4 million in 2003-04, which was a record at the time. The actual capacity is larger still, and processors could use over seven million tonnes in 2013-14.
Canola exports have also seen steady growth, nearly doubling over the past 10 years to reach 7.3 million tonnes in 2012-13.
At the end of the 2003-04 crop year, Canada was sitting on canola ending stocks of 609,000 tonnes, according to government data, nearly identical to the 608,000 tonnes carried over from 2012-13. The stocks-to-use ratio of about 8.5 per cent in 2012-13 is also right in line with the 8.3 per cent seen back in 2003-04. In 2005-06, when prices were at their lowest, the stocks-to-use came in at a more burdensome 21.8 per cent.
That key stocks-to-use statistic was somewhere between those two points when canola prices reached their peak in 2008. At that time, fundamentals were less of an issue, with speculative money behind the run-up (and eventual crash).
Movements in the CBOT (Chicago Board of Trade) soy complex, rising South American soybean production, the Canadian dollar, macroeconomic conditions and many other outside factors also have some bearing on the direction of the canola market going forward.
Corn, soy lower
Soybean futures in Chicago moved lower during the week, bridging a chart gap that had been in place for the past month. Solid demand from China and the tight old-crop supply situation remain supportive overall, but harvest pressure will soon come forward to keep the nearby bias to the downside.
Corn also moved lower during the week, with harvest pressure and relatively favourable weather behind some of the weakness.
Wheat, meanwhile, was mixed. Harvest pressure and large international crops kept the path of least resistance lower in the Minneapolis spring wheat market. However, the Kansas City and Chicago winter wheat futures were mixed to higher, as export demand saw some improvement.
