MarketsFarm — ICE Futures canola contracts trended lower over the past two weeks and could have some more room to the downside before eventually returning higher with summer weather markets and expected strength in Chicago corn futures.
The November canola contract settled at $450.40 per tonne on Wednesday. The contract could have another $5-$10 to the downside, according to Errol Anderson of ProMarket Communications in Calgary, who expected to see “a little more weakness” for canola in the near term “just because of the improvement in the crops.”
While improving moisture conditions in parts of Western Canada should weigh on values, Anderson added that the U.S. corn market will be a major driver going forward.
“If the corn market starts to recover into late summer, it will pull canola back up,” said Anderson.
U.S. corn planting was delayed due to excessive moisture this year, with actual seeded area expected to be lowered when the U.S. Department of Agriculture releases the results of a re-survey in August. Yield losses are also expected.
“It just raises the tide,” said Anderson on the influence of U.S. corn on Canadian canola prices.
“This could be a very volatile weather season, just because there are so many unknowns,” he said, adding that the lateness of the U.S. crops also leaves them more susceptible to an early frost.
The Canadian dollar could be a wild card, though. Anderson said a break above 76.5 U.S. cents in the currency could set the stage for a run at 78 U.S. cents, which would weigh on canola prices. At the same time, he thought crude oil could be working its way lower, which would also be bearish for canola.
Canada’s ongoing diplomatic dispute with China is also weighing on canola. However, “China or no China, corn is still king,” said Anderson.
He also expected Canadian canola would find other destinations if China remains closed. “It’s like a river that’s clogged up — it finds a way.”
— Phil Franz-Warkentin writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.