ICE weekly outlook: Canola hinges on iffy U.S.-China deal

ICE May 2019 canola with Bollinger (20,2) bands, a gauge of market volatility. (Barchart)

MarketsFarm — Canola contracts one the ICE Futures platform held within a narrow range during the week ended Wednesday, waiting for a catalyst to push futures one way or the other.

To Errol Anderson of ProMarket Communications in Calgary, canola’s path is connected to a trade deal between the U.S. and China, which be a boon to U.S. soybeans — with a spillover into canola.

“In all honesty, the markets are waiting for the U.S./China trade deal and it’s not coming. The probability of a deal is very low,” he said.

The projected deadline for a deal has been pushed back a number of times, and is currently expected to be completed by the end April or the beginning of May.

“It’s more than trade, it’s technology. It’s a technology power battle,” Anderson said of the negotiations.

Over the course of months of negotiations, technology has one of the issues yet to be resolved, along with intellectual property rights and China’s industrial subsidies.

If there is a deal, Anderson predicted U.S. soybeans would rise by 50 U.S. cents per bushel. For canola that would mean a C$10-$15 per tonne boost in prices. If there isn’t a deal, he projected canola to fall by those amounts.

“Canola respects the direction of soybeans,” he said.

Should traders become frustrated, the May contract for soybeans will fall below US$9 per bushel, he said. Otherwise soybeans will continue to bounce around by 50 cents either way.

One issue standing in the way of canola benefitting from a U.S./China trade deal is the dispute between Canada and China, as the latter has banned canola imports from Canada.

China claimed that shipments by Richardson International and Viterra contained hazardous pests, but no evidence has yet been presented. Canadian farmers were on Parliament Hill in Ottawa this week demanding the federal government pursue a harder line against China.

For its part, the government previously stated it would not retaliate against China and will try to resolve the matter on a scientific basis.

Canada’s federal agriculture department said via email Wednesday that Agriculture Minister Marie-Claude Bibeau wrote to her Chinese counterpart on March 31, offering to send a high-level technical delegation to China.

Officials at Canada’s embassy in Beijing are “currently in communication” with Chinese customs officials to discuss details, the department said, adding the federal government is “urging China to receive our delegation as soon as possible.”

— Glen Hallick writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market reporting. Includes files from Glacier FarmMedia Network staff.


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