ICE Futures Canada canola contracts moved lower during the week ended Aug. 9, setting fresh lows in the process as the path of least resistance remains down despite any modest short-covering bounces in the interim.
November canola dropped as low as $472.40 during the week, which was a nearly three-year low for a front-month contract. Oversold price sentiment did help values settle off that low by Friday, but the chart damage has been done and there is little reason from a technical standpoint to correct much higher without any outside influence.
In the U.S., CBOT soybeans actually managed to post small gains on the week, although soyoil saw some large declines. Tight nearby supplies, increasing demand from China, and uncertainty over new-crop production all served to underpin soybeans.
Corn and wheat were both lower, with improving U.S. corn production prospects behind some of the weakness in the grains. The cool temperatures seen across the Midwest in July limited the stress on the corn crop during pollination, and now a little heat and moisture will go a long way to producing a large crop.
The release of the U.S. Department of Agriculture’s latest production estimates on Aug. 12 has the potential to sway the markets one way or the other, if there are any surprises in the data. Pre-report guesses were calling for upward revisions to the U.S. corn crop and a downgrade in soybean production. However, with some time to go before the harvest the numbers will be taken with a grain of salt.
Weather remains the key market driver on a day-to-day basis in the North American futures, and will remain that way until the crops are in the bin.
Flirting with frost
There’s a bit of a catch-22 brewing in the Prairies this year, with farmers caught in the middle. The risk of frost damage is a big variable in the market these days, but the end result may be the same from a monetary standpoint whether there is a frost or not. If there is no frost, production will be large and prices will decline, leading to a lower return for producers. If there is a frost, prices may jump, but those hit by the frost won’t have anything to sell and if they do it will be at a discount due to quality issues.
Some parts of the Prairies flirted with frost already during the week. Official readings all stayed above the 0 C mark, but it felt like fall in many regions and overnight lows in the single digits in the middle of summer raised a few flags. The latest forecasts ahead of the weekend have turned warmer, but it will take an extended frost-free period to get a good-quality crop off this year.
Many canola fields are still in full flower mode. The extended flowering period bodes well for yields, but is also pushing back harvest dates and increasing the risk of frost. Early canola harvest operations were already underway at this time a year ago, but that’s not the case this year and many winter wheat fields are still standing in the second week of August.
U.S. soybeans and corn will also be flirting with the possibility of frost damage this year. While both crops continue to show improvement in the weekly ratings, they are behind normal in their development. If there is a bounce in the U.S., soybeans would likely take the charge as the overall supply situation is tighter for beans compared to corn.