Canola rangebound, but nearby bias up

Commodity News Service Canada — ICE Futures Canada canola contracts moved up and down during the week ended November 5, but finished mixed overall with gains in the front months and losses in the more deferred positions. While the market appears rangebound for the time being, the nearby contracts still have some more room to the upside, according to an analyst.

With the harvest finished across Western Canada, farmers are shutting their bins. That lack of producer selling has led to an inverse in the futures, with speculators holding short positions being squeezed out and end users also being forced to pay up in order to bring in supplies.

“There’s support underneath the market,” said senior market analyst Wayne Palmer, of Agri-Trend Marketing, adding “you can’t take it too far one way, and you can’t take it too far the other way.”

He said the speculators were moving prices around within a range of about $425 to $450 per tonne in the January contract. In order to break out of that range, Palmer said it would depend on where the US soybean market goes. A move above US$11 per bushel in CBOT soybeans would help boost canola, while if January soybeans fell back to US$9.75, canola could test the low end of its own range. South American weather issues also have the potential to move the oilseed markets in general.

Every contract from November 2014 through November 2015 ended the week trading at a premium to the following month. Palmer said such an inverse market was rare, and shows that the producer won’t sell unless they get their price. As a result, he said values will likely go higher before that target is hit and farmer selling picks up.

“Ten dollars (per bushel) is one of those numbers that really sticks out,” said Palmer, adding that he expected that price would be hit in the cash markets by the end of the month. If that happens, it would bring in a wave of farmer selling taking the futures prices lower as well.

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Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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